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NICs and Unapproved Share Option Gains

Much publicity has been given to the fact that NICs are charged on gains arising when share options are exercised outside an Inland Revenue approved scheme and the shares are readily convertible into cash. Many e-commerce and high tech companies offer their employees substantial share options as part of their remuneration package. While employers can plan for NICs on regular pay, it is much less easy for them to plan for NICs on share options, particularly where the share price is volatile. Employers have expressed concern that their exposure to unpredictable NICs liability in these circumstances could put at risk their investment strategies, damage their future growth by deterring investors and even make them insolvent.

At present, employers would be statutorily barred from asking their employees to reimburse their NICs liability, even where share prices have risen substantially and employees have realised large share option gains but the employing company does not yet have a track record of profitability.

The Government has received suggestions that employers&#39 exposure to these difficulties could be resolved, for example by allowing a voluntary agreement between employer and employee that:

– All the employer&#39s NICs liability on unapproved share option gains will be met by the employee,

– Part of the employer&#39s liability on these gains, or the excess above a predetermined amount, will be met by the employee, or

– The employer&#39s NICs liability is to be met by the employee but, by mutual agreement, the employer could take on the statutory liability at the time it is incurred.

All three suggestions would give employers, particularly those with high growth potential, much more certainty about their exposure to NICs liability. The Government is attracted to improving flexibility in this area for business and is considering legislation. It is also implementing a number of changes which particularly help employees in high growth companies. These include Enterprise Management Incentives, to attract &#39hard to recruit&#39 people in companies with high growth potential, and the reform of CGT, benefiting all employees holding shares in their employer.

Accordingly, the Government is seeking views on the proposals and any suggestions should be sent to Financial Secretary, Stephen Timms, (NICs and Share Options), HM Treasury,

Treasury Chambers, Parliament Street, London SW1P 3AG.


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