UK contractor offered cash + equity in a US startup

[bobsaccamano]

Hi, I've scoured the forum for similar threads but could not find an exact one, so here goes..

I'm a UK-based engineer who's received an offer to work part time for an early-stage US startup (no UK presence is planned) for a mix of cash + equity. The startup in question has raised a small round of investment from private investors at a valuation in the low single digit miliions. The equity would be granted as follows: XX $ worth of equity granted each month with a cliff and a vesting period of Y years.

My understanding is that the UK treats RSUs as earned income and taxes it on vesting (i.e. when the equity grant is transferred to the taxpayer). This is obviously non-ideal for me as I would end up paying "dry tax" on illiquid, potentially worthless "paper money". I'm trying to understand if the tax treatment in the UK differs depending on the type of equity granted - ex. Stock options vs RSUs. The former would give me the right, not the obligation to exerise the stock option and receive the said equity. I would be happy to pay tax to HMRC at this point. However, paying dry tax does not make sense to me both in a practical and an ideological sense.

Curious to know if folks here have experience with tax timing for equity received in the UK.

[cojak]

I have no experience in this matter (apart from the contractor bit).

Basically, what you have described is a gamble, so what is your risk profile? You could end up working X months for nothing (quite likely), or even paying out (HMRC) for the privilege of working there (unlikely but possible).

It’s not often we get questions about working at startups but when we do it’s about the contractor getting stiffed by the startup.

There maybe other regulars who come here and give advice, but you should definitely pay a specialist tax advisor for this as relying on internet strangers could prove very costly. But if the risk/reward is worth it that’s what I would do.

[courtg9000]

effort-equity swap.
I have worked on these as a broker.
These deals can go awry quite easily for so many different reasons.
By the same token, smany of these deals can work very well.
Do lots of due dilligence on the the founders,backers, existing staff and any other players in the e-e space on the deal (you may not be the only one on an effeort-equity swap deal on this project) make sure you can work with them. Make sure they are all "straight" - no skeletons in cupboards!
cojak is right though, it is easy for the contractor to get stiffed.
Get as much protection for yourself that is possible put into any agreement. Use a good solicitor. Find one that has worked on these deals before. This is essential.
Look to be able to convert some equity to cash early.
Make sure you can take the hit on any losses.
Also be prepared for an additional cash call.
Be sure that the product is "an absolute cert". Make sure it has a market and that the market will still exist once your work is complete.
You then need advice on the cross border tax situation with the US. This is the tricky bit. Use a specialist on US/UK tax. There are only a few in the UK and you will have to pay £££ for it. Also get advice on the visa situation in case you need to be in the US for any reason.
Then talk to your own accountant and solicitor.
Bottom line - protect yourself.

[Dorkeaux]

I agree with Cojak and Courtg9000.
From my own experience and what I have observed in many other cases, I've never known this to work out well.

Even if the hiring party seems straight, showers you with legal documentation and contracts and perhaps evan has a personal relationship with you, as soon as money comes in to play a means will be found to stiff you, or make you fight for your crumbs tooth and nail.

I'd love to hear anecdotes of this ever working out, but haven't seen it do so.