Paragraph 16, Part 1X, Schedule 3, SSCR 2001

Option A acquired on 6 February 1999 - market value of shares equal to exercise price

Option A exercised on 10 October 2003 - employee acquired shares and £1 in cash per share

The gains on exercise of the share option, i.e. the market value of the shares acquired less price paid to acquire the shares, plus cash, are treated as earnings under Section 4(4)(a) SSCBA 1992. Class 1 NICs are not due on the gain realised by the acquisition of the shares as this is disregarded from earnings under the above paragraph 16. However, Class 1 NICs are due on the cash as this is not disregarded by paragraph 16.