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HMRC internal manual

National Insurance Manual

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Class 1 NICs: Securities: Earnings and payments treated as earnings - legislation

Section 3 of the Social Security Contributions and Benefits Act 1992

The acquisition of employment-related securities is a payment of earnings liable for Class 1 NICs. Provisions within Schedule 2 of the Social Security (Contributions) Regulations 2001 explain how the amount of earnings is determined. Provided the securities are readily convertible assets (see NIM06835) the amount of earnings is the best estimate that can reasonably be made of the amount of general earnings in respect of the provision of the securities. Securities which are not readily convertible assets are disregarded in the calculation of earnings - see NIM06824.

Section 4(4)(a) of the Social Security Contributions and Benefits Act 1992

6 April 1999 to 5 April 2003

Section 4(4)(a) treats as earnings, for the purposes of section 3, any gain on which an earner is chargeable to tax by virtue of section 135 of the Income and Corporation Taxes Act 1988. Section 135 provides for a taxable charge on gains by directors and employees from share options.

6 April 2003 to 15 April 2003

Section 4(4)(a) was amended to reflect the new tax charging provisions within Part 7 of the Income Tax (Earnings and Pensions) Act 2003.

16 April 2003 onwards

Section 4(4)(a) was further amended following the introduction of Schedule 22 to the Finance Act 2003 which replaced Part 7 of ITEPA 2003. An amount which is treated as employment income by virtue of Chapter 5 of Part 7 deriving from the exercise, assignment or release of a securities option is treated as earnings liable for Class 1 NICs - see NIM06825.

Regulation 22(7) of the Social Security (Contributions) Regulations 2001

The above regulation also treats certain post-acquisition amounts derived from employment-related securities as earnings - see NIM06827.