Regulation 22(5) SSCR 2001

A UK employer company is a subsidiary of a US parent company listed on NASDAQ, an investment exchange.

On 6 April 2003 the UK employer gives an employee 1000 shares in the US parent company subject to risk of forfeiture. On 1 March 2004 the risk of forfeiture is lifted and the employee is free to keep or sell the shares. The employee chooses to keep them. The market value of the shares on 1 March 2004 is £10,000.

The above regulation imposes a Class 1 NICs liability on the same amount which counts as employment income under Chapter 2 of ITEPA 20003 as originally enacted. The amount of employment income is the value of the shares when the risk of forfeiture is lifted less the amount paid for the shares, which in this case is Nil. The taxable amount is therefore £10,000 and this is the amount which attracts a Class 1 NICs liability even though the employee retains the shares.