Section 1 – between (the signatories to
the joint election)
Employer (Secondary Contributor)
An election must be made jointly between the secondary
contributor, (usually the employer) and their employee. It is
important to show this at the beginning of the joint election. Give
enough information to identify which parties are entering into the
election.
There may be occasions when the company granting the
option(s) / awarding the restricted or convertible securities may
not necessarily be the secondary contributor - for example, it may
be the parent company. In these cases HMRC will accept joint
elections from the parent company but only if it has been
authorised to act on behalf of the secondary contributor and this
is clearly stated in the election. We will still require details of
the secondary contributor (the employer) to be shown in the joint
election.
Example
Company XYZ Ltd, whose Registered Office is at
[insert address and Company Registration
number], is authorised by ABC Ltd, the Secondary
Contributor, whose Registered Office is at
[insert address and Company Registration
number] to enter into a Joint NICs Election with employees
of ABC Ltd on behalf of ABC Ltd.
Group Companies
There may be occasions when a joint election will be
submitted on behalf of a group of companies where there is more
than one secondary contributor. In these cases, rather than provide
us with a separate election for each participating secondary
contributor, you may submit just one election format to be used by
all companies in the group. But you must provide full details of
all the secondary contributors who will be using the election, for
example as an annex to the joint election.
If in the future more companies join the group and these are
also likely to want to use the approved joint election, then
details of the new companies must be provided to HMRC as soon as
possible so that we can extend the Approval Notice to include them.
Without this approval extension, additional companies cannot use
the election.
Employee – ‘the earner’
As the joint election must be between the employer (secondary
contributor) and the employee (earner), the identity of the
employee(s) being asked to bear the employer’s NICs
liabilities must be shown. The model joint election asks for the
employee’s National Insurance number. This is not strictly
necessary but does help to ensure that where there are several
employees with the same name, the unique National Insurance number
issued to them will help to identify who they are.
You can, if you wish, include the employee’s home
address or employee staff numbers if this will help to make
identification of the employee easier.
Where a substantial number of employees are involved we would
suggest that you consider using the two-part election format. Each
employee still needs to complete their part of the election, but
the employer only needs to complete their part of the election once
to make it applicable to all participating employees.
Section 2 – purpose and scope of
election
Part (a)
NICs Elections can now be made to transfer any
employer’s secondary NICs liability that arises on employment
income from securities options, as well as awards of restricted or
convertible securities. However, elections that are made for awards
of restricted or convertible securities can only be applied to NICs
liabilities due on amounts treated as employment income arising
from events occurring after the award of the securities, commonly
referred to as post-acquisition chargeable events.
Details of the employment related securities options /
restricted securities / convertible securities that have been
awarded, or are going to be awarded, to the employee at a future
date must be included in the joint election.
It is recognised that not all options or awards are granted
through a specific scheme or plan and that an employer can make
individual arrangements to grant options, award restricted
securities or convertible securities. A Joint Election can also be
entered into for these individual events.
As part of the details, we require that the schemes, plans or
individual awards under which employment related security options
are granted, or restricted and convertible securities are awarded,
must be identified in the joint election.
The details can either relate to a specific option grant/
restricted or convertible securities award, or cover a period in
which the securities option/ restricted or convertible securities
will be awarded.
It is for this reason that the model joint election provides
3 alternatives and you have the option of choosing the most
appropriate one or a combination of them:
This relates to a specific grant/award of securities options/ restricted or convertible securities. An election that shows this date will only allow the transfer of employer’s NICs for gains arising from those specific grants/ awards made that day (providing a gain has not already occurred before the making of a joint election). This will mean that another joint election will need to be entered into between employer and employee if the employer wants the further grant/ award of securities options/ restricted or convertible securities to be covered by a joint election.
This allows the election to apply to securities options/ restricted or convertible securities granted/ awarded between (or on) the dates specified in the election (providing a gain has not already occurred) to an employee, or to be granted/awarded before an end date specified in the election. The last date could be the date that the share plan ceases or any other date.
This allows you to set a date after which future new employees will be asked to enter into the joint election from the date their employment commences or after they have passed a period of probation.
Most companies choose the second option as it provides more
flexibility to make further grants or awards without the need to
seek HMRC approval of, and enter into, another joint election with
the employee.
Of course this should not prevent option 1 being considered
if the employer feels that it provides more control and certainty
as to which specific options or security awards are covered by a
joint election. Please note that option 1 can also include grants
or awards already made, as long as the NICs liability has not
arisen before the joint election is entered into.
An important point to note is that while a joint election can
be used to cover future grants and awards, the legislation will
only allow the transfer of employer’s NICs for those grants
and awards that have actually been made during the period for which
the election’s approval remains valid.
For example, a joint election uses option 2 to cover
securities options granted between 6 April 2004 and 5 April 2014.
Options are granted on 6 April 2005, 6 April 2006 and 6 April 2007.
But on 10 May 2007 HMRC withdraws approval for the Joint Election,
which means that any options granted from the 10 May 2007 onwards
are no longer covered by the joint election.
The important point is that, despite the withdrawal of
approval part way through the election’s stated period of
cover, the election remains effective for NICs liabilities arising
on those options granted before approval was withdrawn. So, in this
example, the options already granted in 2005, 2006 and 2007 still
remain covered by the election and employer’s NICs can still
be transferred as and when the option gains occur. But the election
will not allow the transfer of secondary NICs liabilities arising
on any options granted after the date on which approval is
withdrawn, regardless of the period of cover stated in the
election.
Part (b)
This refers to the National Insurance legislation under which
an election can be made, which is sub-paragraph 3B(1) of Schedule 1
to the Social Security (Contributions and Benefits) Act 1992.
Part (c)
This is a statement that the purpose of the election is to
transfer the employer’s NICs liability to the employee, under
the limited circumstances identified in the joint election.
Part (d)
The regulations require that you identify the extent of the
transferred employer’s NICs liability. We have provided three
alternatives that you may wish to choose from:
Example – securities option/ restricted or
convertible securities
The employer may decide that they are prepared to meet any
employer NICs liability on, say, the first £0.50 gain per
share following the exercise of a securities option, lifting of a
restriction or the conversion of the security. Any employer NICs
liability on the gain in excess of that amount will then be
transferred to the employee under the joint election. Also
acceptable would be the situation where the employer pays the
employer NICs due on, say, the first £500 of the gain, but the
election will cover any excess over that amount, which would
therefore be transferred to the employee.
Securities option gains will not only result from the
exercise of an option but also from the assignment, release or cash
cancellation of an option. If the employer decides that it is not
appropriate for the election to cover gains made on these other
occasions, the force of the election can be limited to gains made
by way of exercise only.
This means that the employer will remain liable for
employer’s NICs due on any gains from the assignment, release
and cash cancellation of the options as they fall outside the scope
of the election.
Similarly if an employer chooses to limit the Joint Election
to apply to the lifting of specific restrictions or specific
conversions, the transfer of employer’s NICs will be limited
to NICs liabilities arising when those events take place.
Section 3 – Arrangements for payment of
secondary NICs
Before formal approval can be given HMRC needs to be satisfied
that suitable arrangements are in place for the transferred NICs to
be paid to HMRC on time. It is important that any application for
NICs election approval includes supporting material that clearly
demonstrates that appropriate arrangements have been, or in
sufficient time will be, put in place to ensure recovery of the
transferred employer’s NICs from the employee within the
required time scale.
The arrangements listed in this part of the Joint Election
are common examples of the different ways that an employer may
agree with the employee to recover or receive the transferred
employer’s NICs.
Other arrangements may be acceptable. However, whatever
arrangements are put in place, an employer will need to ensure that
those arrangements are (and remain) robust enough for the secondary
NICs to be delivered to the employer to pay to the Inland Revenue
on time.
Where an application is made to seek HMRC approval for a Joint
Election and an employer is unable to demonstrate or provide
suitable details to ensure that the employer’s contributions
will be received from the employee, this is sufficient reason for
HMRC to refuse approval of the joint election facility. The
secondary contributor has a right of appeal in these circumstances
if they can show that adequate arrangements are in place to ensure
the contributions will be received from the employee.
In the event that the Joint Election has been approved by
HMRC, and it is then found that there has been a failure in the
arrangements, or the arrangements have changed such that it may
lead to the failure to receive the payment of the employer’s
contributions from the employee, this is considered sufficient
reason to withdraw approval so that no further use may be made of
that joint election. Once again the secondary contributor has a
right of appeal if they can show that the decision by HMRC to
withdraw the joint election approval was made incorrectly.
Section 4 – Duration of this
election
Part (a)
It is important to make clear to the employee what the life
span of the joint election will be and the events that will bring
the joint election to an end.
Therefore, the Joint Election must contain all four
legislative circumstances, as contained in the model joint
election, these are:
In the situation where the election relates to a specific grant or award, the election will come to a natural end when:
Part (b)
Paragraph 1(1)(e) of Schedule 5 of the Social Security
(Contributions) Regulations 2001, does require a statement of the
method that the employer will have in place to ensure that
transferred employers NICs are received by them.
While section 3 details the arrangements as to how the
employer’s NICs will be received it is also important to be
aware of what arrangements are in place for ex-employees, or those
employees who are sent abroad to work and who are no longer on the
secondary contributor’s payroll.
This paragraph is not compulsory, but it does however
indicate to HMRC that the secondary contributor will be aware when
an individual, who is no longer an employee of the secondary
contributor or has been seconded abroad, will continue to be
subject to the arrangements for payment of the transferred employer
NICs.
If you decide to leave this out of the joint election, then
you must be prepared for HMRC to make enquiries as to how the
company will ensure that when ex-employees or overseas workers
exercise their options, or restrictions are lifted, or conversions
take place, that the company will know when these events occur,
what steps will be taken to recover the secondary NICs from the
employee and that this will then be paid over to the Inland Revenue
on time.
Failure to explain this will lead to approval being withheld
until suitable evidence is provided. This is necessary since HMRC
must be satisfied that with the transfer of the employer’s
contributions to the employee, there will not be a failure in
receiving the employer’s contributions from the employee
regardless of any change in their employment.
Part (c)
The joint election will not to apply where the income from
the securities is relevant employment income that arises by virtue
of the rules in Chapter 3A, Part 7 ITEPA 2003. Chapter 3A
specifically deals with certain types of avoidance transactions
that seek to reduce the income tax &/or National Insurance
liabilities on earnings from securities awarded to an employee.
By this we mean that no transfer of employers’ NICs is
allowed to take place between the employer and the employee and
therefore, the employer continues to be legally responsible for its
payment.
Section 5 – Declaration
Must be signed and dated by both the employer (secondary contributor), and the employee (‘earner’).
Two-part Joint Election
A two-part model joint election format is available to help
companies that want to enter into elections with a large number of
employees.
The two-part model is the same as the single election format,
except it requires Part A to be completed by the employee
(‘earner’) and Part B by the employer (secondary
contributor). Also, each part indicates that the other party has
signed the other part of the joint-election.
