Companies must act fast on NIC ruling

Under the legislation given Royal Assent last week, companies have just 88 days to give notification to the Inland Revenue if they wish to take advantage of this one-off opportunity, which is aimed at helping employees limit their NIC exposure

It allows companies to agree with employees that they should cover the NICs liability on actual gains made when shares are disposed of, instead of a notional value of the option when granted.

It applies to options granted between 6 April 1999 and 19 May 2000 and only for options which had not been exercised on the 7 November 2000 (although they may have been sold since).

David Tuch, head of share options at KPMG, said the ruling would be of special benefit to technology companies, as many of them suffered sharp drops in the value of their stocks over the last year.

‘When values begin to recover, employees will inevitably look to exercise their options and so the NIC liability for the employer will escalate,’ Tuch said.

But he explained: ‘If companies leave it until nearer the end of the year it will be too late for employers to pre-pay NIC at a capped rate.’

If companies choose to exercise this option there is also the risk that they may pay NICs on options that are never exercised, or at a value higher than when they are finally exercised. On the plus side, if shares recover sufficiently, and exceed their market value, employers will not be liable for any additional amounts.

Tuch said, this would require employers to estimate their future share price and cashflow requirements, which ‘given share price volatility over the last twelve months, is not an easy thing for an employer to do’.


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