As an outcome of a consultation on employee share schemes, HMRC has decided to retain the facility to make National Insurance Contribution (NIC) elections in non-tax advantaged employee share schemes
An NIC election is the legal transfer of liability for payment of secondary Class 1 NICs from the employer to the employee, with law requiring that elections must be approved by HMRC.
When an employee makes a gain on exercise of an employment-related securities option, or realises some other chargeable event under section 479 Income Tax (Earnings and Pensions) Act 2003 (ITEPA), this is treated as earnings liable for Class 1 NICs. There will be a liability to pay both a primary and secondary Class 1 NIC.
A primary Class 1 contribution is paid by the employee and a secondary Class 1 contribution is paid by the employer. However, in some circumstances the employee meets the secondary Class 1 NICs liability, this is when a NIC agreement or NIC election is required.
Government came to the conclusion that NIC elections provide a protection that is not available under NIC agreements as NIC agreements do not transfer the liability or have to be approved by HMRC.
Some respondents stated that: ‘NIC elections still maintain a purpose due to the fact that they are a legally binding protection for employers.’
The outcome of the consultation on Employee Share Schemes: NIC elections is available here.
