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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class NICs: Share and share options acquired before 6 April 1999: Conditional shares

Section 3 of the Social Security Contributions and Benefits Act 1992

Before 9 April 1998, a Class 1 NICs liability arose if an employee acquired a payment by way of conditional shares that:

  • were not in an approved scheme; and
  • were capable of being sold on a recognised investment exchange; or
  • for which trading arrangements existed.

The conditions, for example, the shares could not be sold for a certain period, meant that the shares were not as valuable as they would have been without any conditions attached. A Class 1 NICs liability arose on the amount of earnings calculated or estimated at a price which that beneficial interest might reasonably be expected to fetch if sold on the open market on the day the interest was conferred.

Regulation 17AB of the Social Security (Contributions) Regulations 1979

From 1 October 1998, a conditional share was defined as meaning an interest which was conditional for the purposes of sections 140A and 140B of the Income and Corporation Taxes Act 1988.

An amount chargeable to income tax under Schedule E in respect of the conditional acquisition, on or after 9 April 1998, of shares was treated as earnings liable for Class 1 NICs. A further Class 1 NICs liability arose when the conditions were lifted or, if earlier, when the shares were sold provided these were:

  • readily convertible assets; and
  • not acquired through an approved scheme.

The amount subject to Class 1 NICs took account of the NICs paid on acquisition.