Relevant Tax on Share Options

Relevant Tax on Share Options ?- current year changes from 1 January 2024

RTSO stands for "Relevant Tax on Share Options." It is a tax that must be paid on any income tax due on gains realized from the exercise (i.e. sale) of share options.

Significant changes to the Relevant Tax on Share Options (RTSO) were introduced in Finance Act 2023, effective from 1 January 2024.

For year 2023, Taxpayers are receiving assessments from Revenue for non payment of RTSO, based on information filed by their employer company on the annual RSS1.

Here are the key changes:

Employer Responsibility: From 1 January 2024, employers must operate tax via the PAYE system on gains realized from the exercise of share options. This shifts the responsibility for tax payment from the employee to the employer. No changes are currently proposed which alter the obligation to file an annual RSS1 informational return by the employer.

Employee Reporting: For gains realized on or before 31 December 2023, employees must complete Form RTSO1 within 30 days of exercising the option and file an Income Tax Return for the year of exercise by 31 October of the following year. For gains realized on or after 1 January 2024, this requirement changes as the tax will be handled through the PAYE system by the employer.

Double Taxation Relief: For income gains realized on or after 1 January 2024, the provisions of Chapter 4 of Part 42 TCA 1997 apply. This means that double taxation relief can be applied directly through the PAYE system.

Interest on Underpayment: If the amount of RTSO paid is less than what should have been paid, interest will accrue from the due date of payment of the RTSO.

These changes streamline the process by integrating the tax on share option gains into the existing PAYE system, reducing the administrative burden on employees and ensuring timely tax payments.

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RTSO under the old system, BEFORE 1 January 2024

Here are some key points about RTSO under the old system, prior to 1 January 2024. These rules still apply to the current year tax return being filed for year January-December 2023:

Payment Responsibility: The employee or director who exercises the share option is responsible for making the RTSO payment to the Collector General.

Payment Deadline: RTSO must be paid within 30 days of exercising the share option.

Form RTSO1: The payment is made using Form RTSO1, which is available on the Revenue website.

Standard Rate Application: If an individual believes their income for the year will be chargeable at the standard rate of income tax, they can apply in writing to Revenue for approval to pay RTSO at the standard rate. This approval must be obtained in advance of making the payment.

Late Payment: The normal provisions relating to assessments, appeals, collection, and recovery of Income Tax also apply to RTSO.

USC and PRSI: The Universal Social Charge (USC) is calculated and included with the RTSO amount, and Employee PRSI is paid at the applicable rate for the tax year.

Under the old system, RTSO is outside the PAYE collection system, meaning it is not automatically deducted from the employee's salary and must be managed separately.

For more detailed information and personalised advice, feel free to contact us at MKConsultancy.ie or TaxTalk.ie. We are here to help you make the most of your income while minimising your tax liabilities.

November 2024

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