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    NOTES

    The Social Security Contributions (Share Options) Act 2001 received Royal Assent on 11th May 2001
    Commencement date - immediate


    Since 6th April 1999 National Insurance Contributions ("NIC") have been charged on gains arising when share options are exercised outside an Inland Revenue approved scheme if the shares are readily convertible into cash. Legislation was introduced in May 2000 to allow employees to agree that they would pay the employer's NIC when they make a gain on their share options (see Child Support, Pensions and Social Security Act 2000 ss.77 and 81).

    Two problems arose. Firstly an employing company cannot make such agreements with employees if an option has already been awarded. Secondly, as the official explanatory notes to the Social Security Contributions (Share Options) Act 2001 point out, 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.

    The intention of the Act is to help employers resolve those problems. In particular it will enable employers to settle the NIC liability arising on options granted between 6th April 1999 and 19th May 2000 by using the share price on 7th November 2000 to calculate the gain for NIC purposes. Companies can thus limit the liability to the gain attributable to the growth in company share price up to 7th November 2000.

    In order for the provisions to be used, a notice had to be given to the Inland Revenue within ninety-two days of the day on which the Act was passed (ie by 11th August 2001). Where such a notice was given, a special contribution is payable in respect of the gain, if any, which would have arisen had the share option been exercised, assigned or released on 7th November 2000.

    Regulations set out the form and content of the notices mentioned immediately above which are to be given under the Act (the Social Security Contributions (Share Options) Regulations 2001, SI 2001/1817 ). Further detail is available from the Inland Revenue share scheme web site and/or their Press Release 82/01 issued on 11th May 2001.

    The Inland Revenue has issued comprehensive guidance notes on the Act.

    See generally notes at Social Security/NATIONAL INSURANCE CONTRIBUTIONS/rates of (employers and employees) .

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    updated Oct2001