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HMRC internal manual

National Insurance Manual

Class 1 NICs: Securities: Spin-out companies

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

Universities and other Research Institutions (RI) which own Intellectual Property (IP) often develop companies in association with the researcher who worked on the project. These companies are commonly referred to as spin-out companies.

Most RIs have in place an IP sharing policy that acknowledges the researcher’s contribution to the IP by sharing the benefit with the researcher through a share of royalties, or where the IP is developed through a spin-out company into which the IP has been transferred, shares in that company. Part 7 of the Income Tax (Earnings and Pensions) Act 2003 provides the rules for the taxation of employment-related securities and a charge to income tax and liability for NICs could arise under Chapters 3C or 4 of Part 7 of that Act. However, there are special rules which defer a tax charge and NICs liability to a later date.

ERSM100000 et seq explains more about spin-out companies.