Summary and Background
3.The Chancellor announced in his Pre Budget report of 8 November 2000 a new National Insurance measure on employee share ownership. Commons Hansard 8 November 2000, Columns 316 to 327.
4.National Insurance Contributions (“NIC”) are charged on gains arising when share options are exercised outside an Inland Revenue approved scheme if the shares are readily convertible into cash. While employers can plan for NIC on regular pay, it is not as easy for them to plan for NIC on share options, particularly where the share price is volatile.
5.Legislation was introduced in summer 2000 and enacted in sections 77 and 81 of the Child Support, Pensions and Social Security Act 2000 to allow employees to agree that they will pay the employer’s NIC when they make a gain on their share options. However, some companies have said that they cannot make such agreements with their employees if an option has already been awarded.
6.This legislation will help companies that granted options between 6 April 1999 and 19 May 2000. Companies may limit the liability to the gain attributable to the growth in company share price up to 7 November 2000. 6 April 1999 was the date on which gains on the exercise of unapproved share options became liable to NIC. 19 May 2000 was the date on which the Government announced the legislation allowing employees to agree to pay the employer’s NIC.