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HMRC internal manual

National Insurance Manual

Class 1 NICs: Employment - Related Securities: Shares - Early Acquisition of shares from a Share Incentive Plan

Regulation 22(8) of the Social Security (Contributions) Regulations 2001

Generally, there is no income tax charge or NICs liability when an employee acquires shares from a Share Incentive Plan - see NIM06806

However, an amount which counts as employment income by virtue of section 500 of the Income Tax (Earnings and Pensions) Act 2003, with income tax accountable through PAYE, is treated as earnings liable for Class 1 NICs. Sections 500 to 508 provide that where free or matching shares or partnership shares cease to be subject to the plan, an income tax charge may arise if the date when the shares are awarded and the date they cease to be subject to the plan:

(a) is less than three years, the amount of employment income for tax and earnings for NICs is the market value of the shares on the day they cease to be subject to the plan.

(b) is more than three years but less than five years, the amount of employment income for tax and earnings for NICs is the lesser of the market value of the shares when awarded and the market value of the shares when the cease to be subject to the plan.

There is no charge to income tax, and no liability for NICs, when the shares cease to be subject to plan if the employee is a good leaver. That is, the employee’s employment ceases because of:

  • injury or disability
  • redundancy
  • TUPE transfer
  • a change of control or other circumstances ending a company’s status as an associated company
  • retirement
  • death

See ERSM303000 et seq for further information about SIPs.