NICs implications of employment-related securities and securities options

The following Tax practice note provides comprehensive and up to date legal information covering:

  • NICs implications of employment-related securities and securities options
  • Class 1 NICs—when do they arise?
  • Class 1A NICs—when do they arise?
  • Acquisition of employment-related securities or securities option
  • Specific employment-related securities charges
  • Interaction between PAYE and Class 1 NICs
  • Annual interest charge on notional loan
  • Gains from employment-related securities options
  • Notional payments not made good
  • Class 1 NICs—meaning of earnings
  • More...

NICs implications of employment-related securities and securities options

The stated purpose of National Insurance contributions (NICs) is to fund and enable eligibility for certain state benefits, such as the state pension, and other social security benefits, such as the Jobseeker's Allowance and the Maternity Allowance.

There are currently seven different classes of NICs. The type paid depends on the individual's employment status, how much they earn and whether there are any gaps in their National Insurance record. The seven classes of NICs are shown in the table below.

TypeDue from/onStatutory reference
Primary Class 1Employed earnersSSCBA 1992, ss 2(1)(a), 6
Secondary Class 1Employers (and other persons paying earnings)SSCBA 1992, ss 6, 7
Class 1AEmployers: benefits in kindSSCBA 1992, ss 7, 10
Class 1BEmployers: PAYE settlement agreementsSSCBA 1992, s 10A
Class 2Self-employed earnersSSCBA 1992, ss 2(1)(b), 11
Class 3Voluntary contributionsSSCBA 1992, ss 13, 13A
Class 3AAdditional pension voluntary contributionsSSCBA 1992, s 14A
Class 4Profits of a trade etcSSCBA 1992, s 15

This Practice Note focuses upon when NICs charges, namely primary and secondary Class 1 NICs and Class 1A NICs, arise in the context of employment-related securities and securities options.

For further details of who must account for Class 1 and 1A NICs and how they are calculated, see Practice Note: NICs—rates and payment obligations in relation to employment-related securities and securities options.

For current rates and thresholds applicable to

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