Shocked at Tax and NI liability on shares after leaving RM

[wacko74]

Having left the business in April and requesting a share certificate from Equiniti I've just got the figures from them for my tax and NI liability payable on them and I'm pretty gobsmacked at how much I've had to pay, the figures are...

462 free shares (with only 41 conditional)
959 P&M shares

So 1421 in total and my tax and NI liability on them has been calculated at £2,156, requiring 371 shares to be sold to cover it.

Considering 421 out of my 462 free shares were available tax free I'm amazed at how much tax and NI I've had to pay on the 41 free shares that were conditional and the P&M shares

I purchased the maximum P&M shares (£23 a week) for approximately 18 months so how can the tax and NI saving that I made on that £23 a week for 18 months possibly add up to £2,156???

[Streets4228]

It might be that you paid £23 a week for the shares and they were bought at £1.20 or something and now they are trading £6.06. You are liable for the tax and insurance on what you sell them for.

[wacko74]

Thanks for the reply, the sold price for them was £5.80

But I thought the tax that I owed on them was the tax that I had ''avoided'' when buying them from my pre-tax earnings through P&M, i.e..

£23 x 79 weeks = £1,800

20 percent of £1,800 being approximately £360

Surely if I had bought 1000 shares privately at say £1.50 a couple of years ago and now sold them for £5.80 I wouldn't' be liable for paying £2,100 tax on them??

[RobertT]

Each £1 gross payment(the amount on your payslip) you made into P&M only cost you 68p when factoring in tax relief and PSE. So 79 weeks at £23 only actually cost you £1,235.

If you'd bought 100 shares privately at £1.50 and sold them at £5.80, no income tax would be paid on them. And assuming you're within CGT limits, no tax would be paid on them at all.

The rate of income tax and NIC's payable on P&M shares depends on how long you've held them when you take them out of the SIP and sell them, and whether you're a taxable or tax exempt leaver.

Details in the P&M booklet: https://www.myroyalmail.com/sites/defau ... 0FINAL.pdf

[wacko74]

Thank you for the further reply Robert.

The numbers you've mentioned, 79 weeks at £23 a week only costing me £1,235, are still broadly in line with the figures I had in mind regarding my tax and NI liability that I'd have to pay (I was expecting it to be somewhere in the region of £400-£600)

I wasn't a ''good leaver'' so knew I had tax and NI to pay on my 1000 P&M shares but I still can't understand how that figure comes to £2,100?

Surely that figure is too high?

I'm certainly within CGT limits as I don't have any other substantial income from shares.

[RobertT]

They may have applied 40% tax?
In which case a call to the tax office to obtain a refund would be in order.

[wacko74]

So you do agree that (for whatever reason) my tax and NI liability on 1000 P&M shares seems far too high at £2100?

When you say the tax office do you mean HMRC?

I was intending to make my first phone call to Equinti to see if they can offer an explanation

[Woody Guthrie]

It does seem high but the tax implications of selling shares can be complicated.

Whether they've applied 40% tax, incorrectly taxed the entire allocation or applied CGT to the profits without taking into account the threshold is probably something only HMRC can tell you so phoning Equiniti might be a waste of time.

[RobertT]

So you do agree that (for whatever reason) my tax and NI liability on 1000 P&M shares seems far too high at £2100?

Yes it does seem higher than it should be.

I assume you've also had to forfeit your matching shares, as I don't think the P&M scheme has been in place for more than 3 years? I could be wrong?

When you say the tax office do you mean HMRC?

Yes.

I was intending to make my first phone call to Equinti to see if they can offer an explanation

Perhaps both?

[wacko74]

yes I've also had to forfeit my matching shares which I realised.

Phoned HMRC earlier, got passed along 4 different people, none of whom could quite grasp what my issue was.

The 4th was obviously the most senior and knowledgeable but even he just kept explaining to me that I had a tax liability to pay on them as I'd not held them in the sip for long enough, which I'm fully aware of, it's the amount I've had to pay I'm questioning!

He did mention something about I can make a ''India''?? refund request once they (HMRC) have received this income tax from RM

Looks like I'm probably best writing to HMRC then I can outline my issue clearly and concisely.

[wacko74]

Heard back from Equiniti who just said the tax and NI liability is based on 20 percent of the value of the shares when sold, but I'm struggling to understand how this can be right or fair?...

When purchasing my shares I've ''avoided'' paying 20 percent tax and NI on approximately £1,800 of my earnings which equates to around £500

yet I've now got to pay 20 percent of the sold value of the shares which was £8,100 when sold at £5.80, which equates to £2,100 (according to them)

Like I said previously if I'd bought 1000 shares privately at around £1.50 and sold at £5.80 I wouldn't have to pay 20 percent income tax on them so why am I having to pay it on my P&M shares?

To my mind my tax and NI liability should be the £500 or so I avoided paying when purchasing shares from my pre tax earnings?

[RobertT]

I don't want to sound too harsh, but the way I see it, is you signed up to a scheme where if you wanted to take full advantage, you would have to stash away each batch of shares for 5 years, or else face a penalty.

The harshest penalty is if you sell within 3 years. You sold within 3 years!

Therefore you have to forfeit the matching shares and pay tax and NIC's on the full value of the partnership shares.

They're the rules of the scheme you signed up to!

[Woody Guthrie]

I'm surprised though that it's based on the value at sale rather than what you paid for them because that's just a stealth CGT without the allowance which is very nasty.

[wacko74]

Thanks for the further replies, no worries no offence taken buy any ''harshness''.

In my defence Robert I don't think even you with your excellent financial knowledge were aware that the tax liability is based on the value of the shares when you leave rather than a reflection of the tax I ''avoided'' paying when purchasing them.

As Woodie says, I agree it's just a stealth form of cgt.. and one that wouldn't have applied if I'd just bought the shares outside of any employee scheme.

There's still the matter of how they calculate that 20 percent of my £5,800 worth of conditional shares somehow comes to £2,100!

[RobertT]

I knew the rules for P&M are vaguely similar to the free shares, in as much as there different rules for selling before 3 years, between 3-5 years and after 5 years.
I did have to refresh my memory, but I would have thought anyone who has bought shares in the scheme would know more than me.

All the info is in the P&M booklet I linked to upthread. I assume everyone eligible to join the scheme received a paper copy before it launched. I know I did.

The amount of tax you've paid still doesn't make sense to me.
But the maths seems to suggest they might of taxed you on all of the shares and not just the partnership and conditional free ones?