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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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PAYE and NICs - up to 5 April 2015: NICs

The international rules for National Insurance are very different from the international rules for income tax. NICs rules are driven by treaty and wider social policy considerations which do not impinge on income tax. Therefore, the new rules providing for the apportionment of specific employment income under Part 7 of ITEPA 2003 for income tax and PAYE purposes do not apply for the purposes of NICs. Instead, the NICs rules are subject to their own provisions relating to internationally mobile employees within the UK legislation and/or international social security agreements.

For guidance on how the NICs rules apply to employment-related securities in general, see ERSM170700.

NICs liability on earnings from employment-related securities is based on the inclusion as earnings of the straightforward acquisition of securities by an employee from his employer (provided the securities are readily convertible assets) and, in addition, anything which counts as employment income under the charging provisions of Part 7 of ITEPA 2003. Where, prior to the FA2008 changes, for employees who were resident but not ordinarily resident some gains on employment-related securities previously would have counted as employment income only by virtue of Chapter 3C of Part 7 or which may not have counted as employment income at all, the rules applying after 6 April 2008 provide that such gains count as employment income under, for example, Chapters 2 or 5 of Part 7.

Section 3(1) of the Social Security Contributions and Benefits Act 1992 defines earnings as including any remuneration or profit derived from an employment. Section 4(4)(a) treats as remuneration derived from an employed earner’s employment, for the purposes of section 3, an amount which counts as employment income by virtue of Chapter 5 of Part 7 of ITEPA.

Regulation 22(7)(a) of the Social Security (Contributions) Regulations 2001 also treats as remuneration derived from an employed earner’s employment, for the purposes of section 3, an amount which counts as employment income by virtue of Chapters 2 to 4A of Part 7 of ITEPA 2003 and regulation 22(7)(b) adds a second condition that ITEPA03/S698 applies. A NICs liability therefore arises where section 698 applies but section 698 itself does not determine the amount of earnings, this is already established by regulation 22(7)(a). In addition, Schedule 2 to SSCR 2001 sets out the rules on the calculation of earnings and, in particular, paragraph 7 also makes it clear that the amount of any earnings comprised in any payment by way of the conferment of

  1. a convertible interest in securities
  2. a restricted interest in securities
  3. an interest in convertible or restricted securities

are calculated in same manner and at the same time as applies under Chapters 1 to 5 of Part 7 of ITEPA 2003 for the purposes of computing employment income.

SSCBA92/S6 then goes on to impose a Class 1 contribution liability where, in any tax week, earnings are paid to or for the benefit of an earner.