Why is the tax deducted for share options being restricted on the tax comp?

Article ID

ias-10809

Article Name

Why is the tax deducted for share options being restricted on the tax comp?

Created Date

16th January 2013

Product

IRIS Personal Tax

Problem

As per HMRC helpsheet 305 the tax deducted cannot exceed the tax due on that taxable amount. Below is an example to illustrate this.

Resolution

Client has got employment earnings of £63810, land and property income of £817 and Share schemes of £47161. There is also a grossed up pension contribution of £42688. User has entered a 50% tax deducted for share options of £23580 in the data entry screen but the tax computation is showing a restricted tax deducted of £14758. As it’s a rate restricted relief, the tax which is actually being charged on the share scheme income is calculated (assuming all other income is taxed first) Employment £63810 + land and property £817 = £64627 Less personal allowances: £64627 – £7475 = £57152 Basic rate band adjustment due to personal pension contribution: Basic rate band £35000 + grossed up pension contribution £42688 = £77688 20% basic rate – £57152 (other non savings income) 20% share scheme £20536 = £4107 40% share scheme £26625 = £10650 Therefore, tax charged on share scheme income – £4107 + £10650 = £14757 (difference due to rounding which has been ignored in the knowledge base)