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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 1 NICs: Employment - Related Securities: Shares - Share Options Act 2001

Social Securities Contributions (Share Options) Act 2001

Since July 2000 it has been possible, either by agreement or formal election, for employees to meet the secondary Class 1 NICs liability on share gains but only in respect of options granted on or after 20 May 2000 - see NIM06812.

Provisions within the above Act allowed employers to settle any NICs liability on share options granted between 6 April 1999 and 19 May 2000. Notification to settle had to be sent to HMRC (Inland Revenue) by 10 August 2001. A deemed gain was calculated on the share price on 7 November 2000 and an employer paid a special employer only contribution based on 12.2% of the deemed gain.

If the exercise price was higher than the market value on 7 November, that is the amount the employee had to pay for the shares was greater than their market value, or the option and shares were not readily convertible assets, the Act provided that a deemed notification had been made and the NICs liability on 7 November 2000 was nil.

Once settled under the Act, no further NIC liability arises on the gains derived from the exercise of the option.