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HMRC internal manual

National Insurance Manual

Class NICs: International - Reciprocal Agreements/Double Contribution Conventions

The UK has a number of bi-lateral Social Security agreements with other countries outside the European Economic Area. These generally apply to residents of each State and, although there are differences in the various agreements, there are also a number of common features such as:

Employees may remain liable for UK Class 1 NICs if -

  • they are employed in the UK; and
  • are posted by their employer to work in another RA/DCC country; and
  • the posting is for a period not exceeding the maximum posting period allowed under the terms of the RA; and
  • they apply for and are granted a certificate of coverage.

Some Reciprocal Agreements contain Articles for working in both States during the same period. If so, liability for Social Security contributions is generally placed on the State where the employee is normally resident. The US RA is typical and is incorporated into UK law by the Social Security (United States of America) Order 1997:

  • Article 4(1) provides the basic rule that where a person is employed within the territory of one of the countries they shall, with respect to that employment, be only subject to the laws of that country. That is, employees pay contributions in the country in which they work
  • Article 4(2) contains an exception to the general rule in Article 4(1) so that employees can remain in their home Social Security scheme. Under Article 4(2) a person who is normally employed by an employer in one of the countries but is sent to work in the territory of the other country can remain subject to the legislation of their Home State. This applies for postings of up five years although this can be extended.

As a general rule, a payment by way of gains derived from the exercise of a securities option falls to treated as liable for Social Security contributions to the State in which the employee was contributing at the time the securities option as granted. By way of example:

(a) employee works in USA when he is granted a stock (shares) option by his US employer as a reward for past services. He is later seconded to the UK to work for a UK subsidiary after which he exercises the option. No liability for UK NICs arises.

(b)employee is seconded to work for a UK subsidiary by his US employer. A Certificate of Coverage is in place (see NIM33008) which allows him to remain in the US Social Security scheme. He is granted a share option by the UK company whilst the certificate is still valid. No UK NICs liability arises on the gains derived from the exercise the option, any social security contributions are due to the US authorities.

(c)employee is seconded to work for a UK subsidiary by his US employer. A Certificate of Coverage is not place and the employee contributes to the UK Social Security scheme. He is granted a share option and exercises that option whilst still in the UK. Liability for UK NICs arises on the gains.