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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Enterprise Management Incentives (EMI): Taxation of EMI options: National Insurance

National Insurance contributions are payable if the exercise is taxable and the shares are Readily Convertible Assets (RCAs). Shares that are RCAs are, broadly speaking, shares that can be traded on a recognised investment exchange or for which trading arrangements are in place or are likely to come into place, (see ERSM170030).

Employers may recover NICs payable on share options from employees. The amount chargeable to income tax may be reduced by the amount of the employer’s (secondary) NICs if there is a joint election in place. A joint election is an election signed by both employee and employer to transfer the employer’s (secondary) NICs liability to the employee.

A NICs election (ERSM170750) has to be approved in advance by HMRC so should be submitted to ESSU, (see ERSM170750).

Alternatively, an employee can enter into a NICs agreement (ERSM170750). Under an agreement an employer is allowed to approach the employee and ask them if they would be prepared to pay any employer’s NICs liabilities arising from gains made from share options awarded to the employee. A NICs agreement still leaves the employer legally responsible for the payment of the employer’s NICs liability.

The agreement will normally be arranged so that the employer will pay the secondary NICs due but then seek recovery of the money back from the employee through their salary or any future payments due to the employee; or that the employee will make the necessary funds available at the time the gain occurs or shortly after, of an amount equivalent to the employer’s NICs that the employee has agreed to pay. The amount paid by the employee under such arrangements may be deducted from the amount chargeable to income tax on the exercise of the option.

The form of agreement and the arrangements to pay the secondary NICs are matters that will be determined between the employer and the employee. There is no need for HMRC involvement.