Restricted Stock Units are one of the most misunderstood parts of UK pay. The confusion is rarely about whether they are taxed, it is about when, at what rate, and why the bill at the end of the year is bigger than you expected.
RSUs are taxed as income when they vest
When your RSUs vest, their market value on that day is treated as employment income. It is added to your salary for the year and taxed through PAYE: income tax at your marginal rate, plus employee National Insurance. This happens whether or not you sell the shares. Holding on does not defer the income tax; it only affects future capital gains.
Because the value lands on top of your salary, it is taxed at your highest rate. For many people that is 40%. If a vest pushes your income between £100,000 and £125,140, the rate on that slice is closer to 60% once the personal allowance taper is included.
Sell to cover, and why it under-withholds
Most employers handle the tax by selling a slice of the vesting shares, often at a flat assumed rate of around 47% (45% income tax plus 2% National Insurance). That is fine if your real marginal rate happens to match. It is not fine if your true rate is higher, which is exactly what happens in the 60% zone.
The true-up
The gap between the tax actually due on your vests and the amount your employer withheld is the true-up. A positive true-up is money you still owe HMRC. The trouble is that the shares have already been sold and the cash often spent or reinvested, so the bill arrives as a nasty surprise months later.
The fix is simple once you can see the number: set aside the true-up amount when the vest happens, rather than discovering it at filing time.
What about selling the shares later?
The value taxed as income at vest becomes your cost base. If you keep the shares and sell later, only the growth above that base is a capital gain, taxed under capital gains tax rules with its own annual exempt amount. You are not taxed twice on the same value.