Query on earnings - Stocks

[cesc4legend]

I want to show the 'profit made' by me by selling company(employer) stocks.
I had enrolled for the "Employee stock purchase plan", where in my salary 'every month' an amount 'x' is deducted.
And twice in an year (Feb10 and Aug10), stocks are allocated to my account (E-trade U.S), equal to x*6 twice.
recently I sold these stocks in Nov'10 for an amount 'y', which were allocated to me on Feb'10 and Aug'10.
The period I am planning to show income is Jan-Dec'10.
I want to show the profit I made by selling the stocks = y- (x*12) .
My questions are :
1. Can I show this as income ?
2. What proofs do I need - I can give my bank statement for the money y, for x*12 i can show my payslips. Do I need anything extra ?
may be a statement from E-Trade ?

[cesc4legend]

I want to show the 'profit made' by me by selling company(employer) stocks.
I had enrolled for the "Employee stock purchase plan", where in my salary 'every month' an amount 'x' is deducted.
And twice in an year (Feb10 and Aug10), stocks are allocated to my account (E-trade U.S), equal to x*6 twice.
recently I sold these stocks in Nov'10 for an amount 'y', which were allocated to me on Feb'10 and Aug'10.
The period I am planning to show income is Jan-Dec'10.
I want to show the profit I made by selling the stocks = y- (x*12) .
My questions are :
1. Can I show this as income ?
2. What proofs do I need - I can give my bank statement for the money y, for x*12 i can show my payslips. Do I need anything extra ?
may be a statement from E-Trade ?

Can anyone please reply ? ... Thanks

[mulderpf]

The guidance doesn't explicitly state so, but as far as I know, you cannot claim this.

You are trying to claim profit on the sale of an asset. You can only claim earnings (even with regards to dividends, you can only claim it if it is part of your renumeration package or you actually own/run the company). Profit when you sell something (whether it be stocks, a car, a house) cannot be counted as earnings.

EDIT: Also, you are already claiming the purchase of the stocks as income as this would be included in your gross earnings. THAT is part of your renumeration package and can be claimed.

[John]

cesc4legend, in the country where this occurred, what are the tax implications of the transactions you mention? Is the profit you have made taxable in the same way as employment income.

And picking up on the wording of mulderpf above, as he/she says " ..... You can only claim earnings (even with regards to dividends, you can only claim it if it is part of your renumeration package or you actually own/run the company). ...." So how do you react to that, is this arrangement part of your remuneration package?

And the shares when allocated, were they allocated at market value at that time, or at less than market value?

[cesc4legend]

Hi mulderpf and John, thanks for replying.


The profit I have made is taxable, and I have even paid tax (tax is deducted by the company at the time of allocation, "assuming the profit u make" if u sell it at market price at that time. The stocks are alloted to me twice a year in a discounted price).

This is not a part of my remuneration package.
It is a plan offered to the employees of the company where they can invest upto 10% of their salary to get stocks at discounted price.
And when I see the difinition of Dividend in the UKBA website it says "A share of a company's profits, paid to people who have invested in it (for example by buying shares). " I dont see them mentioning it should be a part of my remuneration package.

The shares were allocated at less than market value.

Wish to hear your thoughts...

[mulderpf]

It's the sale of an asset and cannot be included in earnings.

John, also checking the tax law of the country he is in isn't going to change things by much. In my country we pay tax on income earned when you receive rental income. It is still excluded by the UKBA as its not "earnings" or part of any renumeration (e.g. salaried employment / self-employed earnings).

[cesc4legend]

It's the sale of an asset and cannot be included in earnings.

John, also checking the tax law of the country he is in isn't going to change things by much. In my country we pay tax on income earned when you receive rental income. It is still excluded by the UKBA as its not "earnings" or part of any renumeration (e.g. salaried employment / self-employed earnings).

If that is the case, then I wont be able to apply for Tier-1

My point is :
I agree with you, it is an asset if it was stocks of any other company.

But since it is the stocks of my employer company, I think it doesnt qualify.
I cant see much difference here compared to the dividends being paid.

UKBA states :

"Earnings may include dividends paid by a company, where it is a company in which you are active in the day-to-day management"

"Unearned sources of income that we will not consider include dividends from investments, unless it is a company in which you are active in the day-to-day management,"

"Dividend- a share of a company's profits, paid to people who have invested in it (for example by buying shares)."

Since I am buying my own company's stocks, I dont see a problem.

Sorry if I am being persistent, m just desperate since this is my last hope.

Your thoughts please...

[mulderpf]

Well, are you involved in the day-to-day management of the company (note it's management of the company, not a division or area)? That is the only time that you are allowed to use dividends as earnings - othrewise dividends count as unearned source of income which you cannot claim. This is mostly only used by self-employed individuals.

[John]

cesc4legend, is there a slightly different angle here? And I am not talking about the profits you gained when you sold the sales.

Simply, what about the undervalue of the shares when they were allocated to you? You paid tax on that undervalue? That undervalue was put through the calculation of tax paid on your employment income?

[cesc4legend]

cesc4legend, is there a slightly different angle here? And I am not talking about the profits you gained when you sold the sales.

Simply, what about the undervalue of the shares when they were allocated to you? You paid tax on that undervalue? That undervalue was put through the calculation of tax paid on your employment income?

It works like this :
There is a period of 6 months. On the first day and the last day of the period, whichever has the lower value,that is taken and units are alloted at 15% discount.
Like, for period btn Feb-July, on Feb1, the value of the stock was $24 and on July 31, it was $27. So on Aug 1, I was alloted units at ($24 at 15% discount).
Like this x number of units were alloted at the rate of around $21. And in the August payroll, I was deducted tax for this.
tax = tax on the profit I would make if I sold the shares at market price.
i.e, $27 (market price) - $21(alloted price) = $6 .
So tax applicable on ( x units * $6).
Its a different thing that I sold it in Nov and made more profit,so I have to declare it at the end of this financial year i.e, March'11 and pay the extra tax on that extra profit.

[John]

mulderpf, do you think that the $6 per unit can count as earnings? After all all those $6 would not have arisen if the person was not working for the employer. Clearly related to the employment!

[mulderpf]

To be honest, I think it will be a long shot. If a visa application was free and you had nothing to lose, I'd definitely say go for it, but this just seems a bit risky. I understand and agree that technically $6 per unit came from employment (it's a benefit of being employed), but how do you explain that to UKBA?

In South Africa at least (my home country), the company would have to declare that $6 upfront as part of your earnings (you get taxed on it upfront). So your gross would be propped up by $6 as a benefit you received and it would be much easier to claim this as gross earnings.

[cesc4legend]

@ John and mulderpf,

Thanks for your time for discussing this one.
Even I am not 100% confident about it , but I have no other go , have to take the risk since there wont be Tier-1 from April and to my knowledge, it isnt easy getting a sponsor for tier-2. So I am thinking of applying in January.

Even here I can get a document from my company saying I got allotted these many units at this rate and the tax deducted. And it shows on my payslip that every month certain amount is deducted for this scheme. That should take care of proof for deduction.
And for the money I got after selling, I can show the bank account statement.
Even the company might provide some proof (not sure). That should be the proof for selling.

For sure, got some explanation to give !

@John, I presume you are a football fan, hope to see Birmingham at the Carling cup finals playing the Gunners at Wembley

[John]

@John, I presume you are a football fan, hope to see Birmingham at the Carling cup finals playing the Gunners at Wembley

A very unkind comment! Seeing as I support Aston Villa! In case you are not aware of the geography, both Aston Villa and Birmingham City are situated in Birmingham.

Even here I can get a document from my company saying I got allotted these many units at this rate and the tax deducted

Make sure that document makes it clear that you were only allocated those shares at an undervalue because of your employment. That is, get written confirmation that those shares were an integral part of your employment package.

[cesc4legend]

Thanks John, gonna be applying in January. Fingers crossed.

And sorry, I forgot it was a derby , more bad news - England losing out on world cup when will the home of football get its due

[mulderpf]

Good luck!! Let us know how it went.

[silverline]

To be honest, that's an accountant's call......

"Dividends from a company where you invloved in day-to-day management" UKBA means your day-to-day invlovement as owner manager(shareholder) not as an "non-mangement employee".

You can't use Y-(X*12) for sure. not because you have already claimed X earnings in your gross pay but because it's "capital gain" in the capacity of investor not in "ordinary course of business". Policy guidance specifically mention that "interests on savings & investments" will not be considered. Y-(X*12) falls in this category.

In Y-(X*12) you are NOT double counting X element.

Policy guidance allows you to include benefits arising out of employment activity in return of your employment services. One can argue to include discounted element which you got in return of services. But my gut feeling is that it will be hard to convince as SAYE schemes are voluntary like pension. Employer's Contribution of Pension is not included in earnings.

You will defintely get benefit of Share Options only if they are mandatory part of your remuneration package.