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HMRC internal manual

National Insurance Manual

NICs avoidance: Part 7 of the Income Tax (Earnings and Pensions) Act 2003 - employment-related securities


Historically, some of the arrangements which sought to avoid payment of NICs, and PAYE income tax liability, involved securities or interests in securities.

Tax measures - employment related securities

Over the years, successive Governments have introduced tax legislative provisions to deal with employment-related securities, many of which were introduced to combat avoidance of income tax. The main income tax provisions were in FA 1988 and FA 1998, which were subsequently consolidated into ICTA 1988.

In 2003, the Tax Law Rewrite programme rewrote the income tax provisions as ITEPA 2003. Shortly after this, the tax regime was significantly reformed in Schedule 22 of FA 2003 to provide a fairer, more coherent and consistent regime and to deal with further extensive avoidance. As a result, ITEPA 2003 was amended to include changes made by FA 2003 and then further amended to reflect the additional anti-avoidance provisions in FA 2004.

Part 7 of ITEPA 2003 involves securities (which include shares) and options over securities provided by reason of employment, where the amount treated as earnings on acquisition of the security or interest in the security, does not represent the full value of the employment reward provided to the employee. It seeks to subject to income tax, as a reward for services, the value accessed by the employee at the time of access.

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NICs measures - employment related securities

Regulation 22 of the SS(C)R 2001 lists the amounts to be treated as earnings. Essentially, regulation 22 provided that the amount subject to income tax is treated as earnings when assessing Class 1 NICs.

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Guidance - Employment Related Securities Manual and Employment Income Manual

Guidance on taxation and NICs treatment of securities and securities options which are used to remunerate employees, including directors, is included in Employment Related Securities Manual.

Also see from NIM06800.

You will also find guidance about the income tax treatment from EIM12200.