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HMRC internal manual

National Insurance Manual

Class NICs: Securities: Retrospective liability - Options

Regulation 22(10) of the Social Security (Contributions) Regulations 2001

Section 92 of the Finance Act 2006 amended section 420 of the Income Tax (Earnings and Pensions) Act 2003, with effect from 2 December 2004, to bring options within the meaning of securities where the arrangements are for the avoidance of income tax and NICs. See NIM06822 for the meaning of securities. Options were previously -not specifically itemised in section 420.

A further amendment to section 420 inserted a purpose test which excludes options from the definition of ‘securities option’ where the right or opportunity to acquire them has a main purpose of avoiding tax or NICs. The effect of this is that only securities options that are not acquired for the purposes of avoiding tax or NICs will be subject to the rules in Chapter 5 of Part 7 ITEPA 2003, that is no tax charge will arise when the option is acquired. If the option is part of avoidance arrangements they will remain securities and be subject to rules set out in Chapters 2 to 4 of Part 7 ITEPA 2003.

Regulation 22(10) SSCR 2001 was introduced on 6 April 2007, but with effect from 2 December 2004, to treat as earnings any amount:

  • which, virtue of the operation of section 92 of the Finance Act 2006, counts as employment income of the employed earner under any of Chapters 2 to 4 of Part 7 ITEPA 2003; and
  • where the relevant date for the income determined under section 698(6) ITEPA (whether or not the PAYE regulations apply to that income) is on or after 2 December 2004 and before 19 July 2006.

From 19 July 2006, regulation 22(7) SSCR 2001 treats such amount as earnings.