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HMRC confirm the preservation of NIC elections

On 18 October 2016, HMRC confirmed that they would continue the availability of NIC elections for non tax-advantaged share schemes.

NIC elections provide protection for employers who may continue to elect jointly with the affected employees to transfer an employer’s liability for payment of secondary Class 1 NICs to employees, subject to obtaining the approval of HMRC.

Pett Franklin was named as a stakeholder in the consultation document which was originally published on 21 April 2016.

We are pleased with HMRC’s decision to retain the NIC elections facility – in line with our consultation response – which is of particular importance where there is volatility of share values so that, absent this ability, employers have an uncertain and variable future NIC cost.

As one respondent notes, this may otherwise have acted “as a deterrent to offering share awards, particularly by fast-growth SMEs contemplating a sale or flotation exit event as a trigger for option exercise.”

Equal protection is not afforded by NIC agreements which do not legally transfer this liability.

Further, given the recent withdrawal of the post-transaction valuation checks by HMRC Shares and Assets Valuation, there is uncertainty for employers as to the potential NIC costs where shares are awarded in private companies which are nevertheless readily convertible assets.

Consideration might therefore be given to extending the ability to agree or elect to transfer NICs to all awards of shares rather than in the limited circumstances set out in the existing legislation

To access a copy of the consultation document responses, please click here.

Pett, Franklin & Co. LLP are experts in employee share schemesshare valuations and executive incentives. To find out how we can help you or your client, please call Stephen Woodhouse on 0121 348 7878 or email Stephen at stephen.woodhouse@pettfranklin.com.