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HMRC internal manual

National Insurance Manual

Class 1 NICs: Securities: Acquisition, assignment or release of a securities option

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

The amount of any gain calculated under section 479 of the Income Tax (Earnings and Pensions) Act 2003 in respect of which an amount counts as employment income under section 476 is treated as earnings liable for Class 1 NICs. The amount of earnings is usually the total amount of the gain realised less any deductible amounts. 

Section 476 provides for an income tax charge on an amount which counts as employment income on the occurrence of a chargeable event in relation to employment-related securities - see NIM06822. Section 477 defines the chargeable events but briefly these are the:

(a) acquisition of securities following the exercise of an option;

(b) assignment or release of an option for some consideration;

(c) receipt of a benefit in connection with the option.

Deductible expenses

Deductible amounts are provided for in section 480 ITEPA 2003 and are:

  • any consideration given for the securities option;
  • any expenses incurred in connection with the acquisition of securities;
  • any reduction in the market value of the securities as a consequence of the acquisition of other transactions;
  • any amount which counts as employment income under an approved Company Share Option Plan;
  • any amount that constituted earnings in respect of the acquisition of the securities;
  • the amount of any gain by a previous holder or an assignment of the securities which would have been a deductible amount.

Although income tax relief is available under section 481 ITEPA 2003 when an employee meets the secondary Class 1 NICs liability arising on the exercise, assignment or release of a securities option such a payment is not disregarded in the calculation of earnings for NIC purposes.

ERSM110510 explains how the amount of employment income is calculated.