Commentary Section 2: Effects of notice under section 1
13.Subsection (1) exempts from Class 1 contributions any gains arising from the exercise, assignment or release of options under circumstances described in section 1: that is, options granted between 6 April 1999 and 19 May 2000, and exercised, assigned or released after 7 November 2000, for which a notification has been made. Instead, there shall be a deemed gain subject to a special charge – described in subsection (2) - payable by the person who lodged the notice described in section 1.
14.Subsection (2) sets the rate of the special contribution at 12.2%, which is the 2000/2001 employer National Insurance Contribution rate. The charge is payable on the deemed gain, if any, which would have arisen had the option been exercised, assigned or released on 7 November 2000.
15.Subsection (3) deals with the case where consideration for the assignment or release of a right takes the form which is or includes something other than a replacement right e.g. cash. It provides an anti-avoidance measure to ensure that were an employee to be given consideration which exceeds the value of the old option only the part of the consideration which relates to the potential gain in the old option would be exempt from Class 1 liability. In testing the parity, account is taken of the amount that the employee would have to pay to exercise the option and/or the amount given for the option itself. The amount obtained for the assignment or release is compared with the inherent gain in the old option.
16.Subsection (4) provides that, if the special contribution is not paid within 92 days of Royal Assent, the normal rules for assessing the liability will apply. That is, Class 1 NIC will be chargeable under section 4(4)(a) of the Social Security Contributions and Benefits Act 1992 as now.
17.Subsection (5) allows the Inland Revenue to direct that the 92 day period be extended if it thinks that the person responsible for the payment had reasonable grounds for believing that the liability had been settled, or had reasonable excuse for failing to meet the deadline.
18.Subsection (6) provides that the direction to extend the 92 day deadline is to be given by an officer of the same description, and to be subject to the same right of appeal, as any other decision on the national insurance liability in question.
19.Subsection (7) provides that where Class 1 contributions have been paid on gains arising before the passing of this Act, the secondary Class 1 contributions may be offset against the special contribution payable, and the remaining balance of Class 1 contributions, if any, returned.