BIM44215 - Specific deductions - employee share schemes: Accounting for ESOP trusts, a/c periods starting before 1 Jan 2003 - UITF25

UITF Abstract 25 “National Insurance contributions on share option gains” (UITF25) was issued on 27 July 2000 following the introduction of employers’ National Insurance Contributions (NICs) payable when employees make profits or gains by exercising share options. It applies to accounting periods ending on or after 22 September 2000.

Class 1, 1A and 1B NICs payable by employers are part of the costs of being an employer and so are allowable deductions in computing the employer’s taxable profits. The timing of the tax deduction for the employer’s NICs follows their accounting treatment under UITF25.

Under UITF25 provisions should be made for employers’ NICs payable in respect of share options outstanding at each balance sheet date that are expected to be exercised.

The provision should be:

• calculated at the latest enacted NICs rate;
• applied to the difference between the market value of the underlying shares at the balance sheet date and the option exercise price;
• allocated over the period from the date the option was granted to the end of the performance period;
• adjusted from the end of the performance period to the actual exercise date by using the current market value of the shares.