The new regulations, which follow new legislation introduced in
the summer, provides the process to enable employers to seek
approval so that they may make an election with their employees,
which transfers the liability for employer's National Insurance
contributions (NICs) from the employer to the employee. This will
solve accounting difficulties and also help smaller start-up
companies with limited cash flow.
Financial Secretary Stephen Timms said:
"I am very grateful to those companies and
their representatives whose contributions have helped develop the
process under which share option elections can be made. Allowing
employers and employees to make an election to transfer the
National Insurance charge provides a technical solution by
completely eliminating the unpredictability of the charge. I am
also pleased that many companies have already made applications to
use this solution."
The detail
Under new legislation introduced in the Child Support, Pensions
and Social Security Act 2000 the employer and employee will be able
to make a joint election under which the liability for all or part
of the employer's NICs on share option gains is transferred to the
employee. These regulations provide the supporting legislation to
enable employers to make elections. An election will take effect
after the Inland Revenue have approved the form of the election and
the arrangements made for securing that any liability transferred
by the election is paid.
Approval to applications for elections can now be made after
which employers and employees can make an election in relation to
any unapproved share option granted on or after 6 April 1999 where
the gain has not yet arisen. Additionally, employers may also make
elections covering options granted to their employees where the
share option gain is made after 19 May but before the election is
made provided that the election is made by the 27 October 2000.
This change should help companies with very volatile share
prices that offer their employees substantial share options as part
of their remuneration package. Transferring the charge to the
employee should solve the accounting difficulties faced by
companies, particularly in the US. These arise because of the need
for companies to put a provision in their accounts for a NICs
liability that is unpredictable since it depends on the company's
share price at the time when the employee decides to exercise his
or her option. It also helps smaller start-up companies which may
have limited cash flow by moving the liability for the employer's
NICs charge to the employee.
