Explained: What You Need to Know About New Employee Share Option Obligations

Explained: What You Need to Know About New Employee Share Option Obligations

Date:

Category:

Share this article:

Employers in Ireland are now responsible for handling tax payments when employees cash in on share options. The new rules that came into force on 1st January 2024 further extend the system of withholding personal taxes through payroll, which covers Income Tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI).

Announced in last autumn’s budget, the news prompted some concerns from industry bodies about the rising administrative burden placed on employers. But what exactly do the changes cover, and what do they mean for you?

Background

The new rules relate to unapproved share options held by employees of a business. Unapproved share schemes are those that don’t benefit from ‘approved’ tax breaks. So-called approved share schemes in Ireland include Approved Profit Sharing Schemes (APSS), Save As You Earn (SAYE) and Employee Share Ownership Trusts (ESOTs). There are also beneficial tax treatments available under the Key Employee Engagement Programme (KEEP).

Up until the end of 2023, it was up to employees to report taxable income to Revenue when they realised unapproved shares, and then settle the tax liability directly. Employees had 30 days to do this from the date of their share option being exercised, and did so by submitting a Relevant Tax on Share Options form (RTSO1).

But under the new system, responsibility switches from employees to employers, who are obliged to remit any tax owed to Revenue through payroll deductions.

An Extra Burden?

Two things stand out to suggest that employers should not be overly concerned about the potential extra administrative burden this change creates for them. One is the fact that it only applies to the exercise of shares issued under unapproved schemes. Approved scheme shares and shares granted under the KEEP initiative are exempt from Income Tax anyway and there is therefore no accounting requirement for tax purposes when they are realised.

While businesses have to go through an approval process to be able to issue approved shares, the tax incentives make them very attractive both to employers and employees. This benefit comparison keeps a natural cap on the number of unapproved shares being issued.

Second, employers have always had to account for the granting of unapproved shares anyway. A share counts as a taxable benefit unless it is given an exemption under an approved scheme. That means that anyone in receipt of an unapproved share has to pay Income Tax, USC and PRSI anyway. And this has always fallen to employers to make the deductions through payroll.

The extension of the scheme so employers now also handle tax as deductions from payroll when those same shares are realised will in practice not be a huge additional burden. The reporting obligations will remain exactly the same – employers have always used form RSS1 to report the granting, exercise, transfer or release of unapproved shares. It’s simply a case of extending reporting of exercised shares to withholding tax owed via the payroll system.

Contact us today

This website uses cookies

With these cookies, we and third parties can collect information about you and your internet behaviour, both within and outside our website. Based on this, we and third parties adjust the website, our communication, and advertisements to your interests and profile. You can read more information in our cookie statement.

If you opt for acceptance, we will place all cookies. If you opt for rejection, we will only place functional and analytical cookies. You can adjust your preferences at a later time.

Accept Reject More options

This website uses cookies

With these cookies, we and third parties can collect information about you and your internet behaviour, both within and outside our website. Based on this, we and third parties adjust the website, our communication, and advertisements to your interests and profile. You can read more information in our cookie statement.

Functional cookies
Arrow down

Functional cookies are essential for the proper functioning of our website. They allow us to enable basic functions such as page navigation and access to secure areas. These cookies do not collect personal information and cannot be disabled.

Analytical cookies
Arrow down

Analytical cookies help us gain insight into how visitors use our website. We collect anonymised data about page interactions and navigation, enabling us to continuously improve our site.

Marketing cookies
Arrow down

Marketing cookies are used to track visitors when they visit different websites. The goal is to display relevant advertisements to the individual user. By allowing these cookies, you help us show you relevant content and offers.

Accept all Save

Name

Subtitle
Developer
Location
They are focussed on creating a future-focused and relationship-driven culture, that keeps its promises to you, our team members, and partners.
Xeinadin