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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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NICs avoidance: treating payments as earnings: introduction

Some arrangements which sought to avoid NICs did so by taking advantage of gaps in the NICs legislation. For example, gains arising from the exercise of share options, which are not generally earnings under section 3 of the SSCBA, see NIM02010, NIM06803 and ERSM110100.

One example of such gains are those a person can benefit from when they purchase shares at a price below the current value of those shares by exercising a share option given to them by their employer. Although the acquisition of the share option may be from the employment, its value on acquisition may be either nil or low and so little or no NICs will be due.

Before 6 April 1999, there was no legislation in the SSCBA 1992 to treat as earnings gains or income whose source was something other than from the employment. But with effect from 6 April 1999 certain

  • gains from share options were treated as earnings, see NIM06803, NIM06825, NIM50150 and ERSM110110 
  • amounts of income chargeable to income tax in respect of an acquisition of shares or an interest in shares were treated as remuneration from employment, see NIM50150.

These measures aligned the income tax and NICs treatment of such gains and income, but also put an end to some avoidance arrangements which sought to exploit gaps in the NICs legislation.