COMPLIANCE
Victoria Bright - share plans and incentives
Q: How important is timely interaction with payroll teams in your work? Timely interaction with payroll teams is crucial to ensure everything can be processed correctly and efficiently. When it comes to restricted stock units, the reward team needs to inform the payroll team well in advance of the vesting dates. This allows everyone to prepare accordingly, as these events follow a set timeline. “Timely interaction with payroll teams is crucial to ensure everything can be processed correctly and efficiently” For share option plans, where employees can exercise options at any time, it’s essential to understand the parameters, be clear on the process and ensure the withholding measures are in place, getting the payroll team involved
early so they can manage exercises promptly. In some cases, different records / pay as you earn codes may need to be set up, so the payroll team will deal with the practicalities and admin involved, and will know which items should sit on which record. Q: Can you explain the ‘sell to cover’ process and its implications for payroll? When we talk about ‘sell to cover’, we’re essentially discussing a situation where someone is entitled to, say, 100 shares. To cover the tax and NICs, 47% of those shares might be sold immediately. The value from this 47% is offset against these deductions. However, the payroll team also needs the gross amount – the full notional amount of all the shares – to operate payroll correctly. Whether you ‘sell to cover’ or ‘net settle’, from the employee’s point of view and on their payslip, it all comes out in the wash. The real impact is on reporting. For year end share plan reporting, you need
to know if something is a ‘net settle’ or ‘sell to cover’. The corporation tax implications are quite different for each method. Q: Are there any other areas of risk you commonly see? One major issue is with overseas headquartered companies that have international share plans. Sometimes, individuals in the UK payroll team aren’t aware of these plans, especially if only senior executives know about them. This can lead to situations where payroll obligations need considering, but the payroll team is in the dark about the shares or options issued. Another tricky area is with US-led plans like the employee share purchase plan. In the US, you get specific tax breaks for these plans, and they don’t go through payroll. However, when these plans are rolled out internationally, companies sometimes miss that in the UK, and any discount on the value of the shares on the day they’re received is taxable.
Shannon Long - expatriate tax
Q: How important is timely interaction with the payroll team? Timely interaction with the payroll team is vital, both with domestic payrolls and when dealing with modified payrolls. Once a modified payroll arrangement is in place, there are leniencies built in to allow for the complexities of international arrangements. Ideally before the year end, the final position should be trued up: it’s in the employer’s interest to make sure the final position is trued up because they’re ultimately responsible for paying the tax to HM Revenue and Customs (HMRC), even though the true up is finalised with the employee’s personal tax return. Another risk area is the implementation of NT codes and S690 directions. These shouldn’t be applied until HMRC has approved the scheme but there can be a
significant lead time in obtaining approval from HMRC, therefore applications should be submitted to HMRC early in the process. “The shift towards remote working has definitely impacted Q: Since the pandemic, a lot of employers have introduced remote working policies. What impact has this had from an expat point of view? The shift towards remote working has definitely impacted expat payroll interactions. Many companies have expat payroll interactions”
now established policies outlining how
long employees can work in a particular country to limit their exposure to risk. However, where there isn’t a plan, or agreements aren’t adhered to, we’ve seen instances where shadow payrolls needed to be set up in an overseas country, leading to compliance issues which had to be addressed. So, the key takeaway here is timely communication – everyone needs to be on the same page – in addition to payroll that might include human resources, the tax department or the global mobility teams. By working closely together, planning ahead and taking advice where necessary, you can navigate local and international payroll complexities with confidence and ease.
23
| Professional in Payroll, Pensions and Reward |
Issue 107 | February 2025
Made with FlippingBook - Online magazine maker