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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 NICs: Employment - Related Securities: Shares - Employee agrees or elects to pay secondary Class 1 NICs

Paragraphs 3A and 3B of Schedule 3 to the Social Security Contributions and Benefits Act 1992

Since 28 July 2000 it has been possible for an employee and employee to agree, or elect, for the employee to pay all, or some, of the secondary Class 1 NICs due on certain gains from shares and other securities - see NIM06812.

Employee agrees to pay secondary Class 1 NICs

If an employee agrees to pay the secondary Class 1 NICs, the employer is still liable to account for those contributions in the first instance. The arrangement for reimbursement to the employer by the employee is a matter between them and does not involve HMRC.

The amount of the secondary Class 1 NICs paid by the employee is not disregarded in the calculation of earnings and NICs are due on the full amount of the gain. However, tax relief is available provided it is paid to the employer immediately or within 60 days after the end of the tax year.

For example, the gains deriving from the gains from the exercise of a securities option are £1,000. The amount of secondary Class 1 NICs due on £1,000 is £128 which the employee pays immediately. Total amount liable for Class 1 NICs is £1,000 but income tax is chargeable on £872.00 (£1,000 - £128.00). See ERSM110520.

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Employee elects to pay secondary Class 1 NICs

If an employee and employer elect to transfer the legal liability to pay all, or some, of the secondary Class 1 NICs, to the employee then such an election must be approved by HMRC.

Schedule 5 of the Social Security (Contributions) Regulations 2001 explains what an application for an election should contain, such as details of the securities option etc. The application is then considered by:

Charity Assets and Residence, Employee Shares and Securities Unit, Nottingham Team, 1s t Floor, Ferrers House, Castle Meadow Road, Nottingham NG2 1BB

The amount of secondary Class 1 NICs paid by the employee under an approved election is not disregarded in the calculation of earnings and NICs are due on the full amount of the gain. However, tax relief is available.