Bonus tax: Revolut error led to conflict with former employees - FT

British fintech Revolut has found itself at the center of a conflict with former employees who face higher than expected taxes on income from the sale of shares in the company, the Financial Times has learned. The reason for the conflict was Revolut's incorrect information about the timing of the exercise of stock options, which prevented the ex-managers from claiming a reduced tax rate. According to one of the FT's sources, Revolut admitted the mistake.

Fintech bank Revolut has found itself at the center of a conflict with dozens of former managers because of incorrect information provided to them by the service regarding stock options. This was reported by the Financial Times with reference to sources and internal correspondence Revolut, which the newspaper studied. According to its information, in December the London-based neobank notified the ex-employees of the need to pay national insurance contributions and income tax on the profit from the sale of part of their Revolut shareholdings.

For the former employees this came as a complete surprise, writes the FT. They assumed that their transactions were only subject to capital gains tax, which is 24%, while the combined rate of income tax and National Insurance contributions at the top of the scale reaches 47%: the difference in amounts can be significant, the newspaper explained. Former Revolut employees have sent a collective appeal to the company, it added.

Revolut declined to comment to the Financial Times.

The point of contention relates to information that Revolut previously provided to former employees about the timeframe for exercising their stock options (CSOPs): companies use such options to retain and reward employees, the FT writes. They are usually exercisable three years after they are granted, and can be exercised within a short period of time, usually around two months, when leaving the company. However, Revolut erroneously informed some holders of such options that their exercise period had been extended from 60 days to ten years.

According to correspondence seen by the Financial Times, Revolut identified the error during an internal review. The company notified former employees that extending the period to ten years would be considered a "disqualifying event" by the UK tax authorities, meaning the gain from the sale would be subject to income tax and insurance contributions. Revolut has admitted that the initial information was incorrect, with employees advised to take individual tax advice, one of the FT's sources says.

Extending the options from 60 days to 10 years did look "unlikely", a lawyer specializing in CSOP told the FT (his name was not disclosed by the newspaper). Giving the same tax breaks to current and former employees makes no commercial sense and does not incentivize retention, he added.

The conflict began after former Revolut employees were offered to sell shares back to the company: as part of this buyback Revolut received a valuation of $52 billion, the FT reported. At the same time, in November, the fintech held a round of investments with a valuation of $75 billion. Initially, the service informed employees that participation in this round is mandatory, otherwise their options will become invalid. Later, the company changed its position and reminded that participation in the buyback is voluntary, said a source close to the company.

For those employees who did not participate in the buyback and whose shares have formally lapsed, Revolut has offered to swap the securities for new ones on a 1:1 basis, but they too will not receive CSOP tax benefits if sold, the FT reported.

Nikolay Storonsky, founder and CEO of the fintech bank, said in an interview with YouTube channel "Eto Osetinskaya" in December that his stake in Revolut has increased from 25% to 29% as of 2024. The stake increased through the implementation of an incentive program that works similar to Elon Musk's compensation at Tesla and is tied to the company's value growth. "I now have [...] 29% and plus another 10% extra if I reach certain targets," the businessman - said the businessman.

This article was AI-translated and verified by a human editor