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HMRC internal manual

National Insurance Manual

Class NICs: Share and share options acquired before 6 April 1999: Convertible shares

Section 3 of the Social Security Contributions and Benefits Act 1992

Until 9 April 1998 a Class 1 NICs liability arose when an employee acquired a payment by way of convertible shares if:

  • the shares were not provided through an approved scheme; and
  • were capable of being sold on a recognised investment exchange; or
  • trading arrangements existed.

The amount of earnings liable for Class 1 NICs were calculated or estimated at a price which the beneficial interest might reasonably be expected to fetch is sold on the open market on the day the interest was conferred.

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

From 9 April 1998 convertible shares were defined as having the meaning within section 140D of the Income and Corporation Taxes act 1988. The same amount chargeable to income tax under Schedule E in respect of the acquisition, on or after 9 April 1998, of convertible shares is treated as earnings liable for Class 1 NICs if the shares:

  • were not provided through an approved scheme; and
  • were readily convertible assets; and
  • at the time the original shares were conferred on the employee and entitlement existed to convert them.