International aspects of National Insurance
Shares and share options
Contents
General
National Insurance on share option gains is dependent on whether a charge arises under section 476 ITEPA. This therefore requires that a person must be treated as Case 1 that is they are treated as being resident/ ordinary resident (R/OR) at the time of grant. If there is no R/OR then it follows that there cannot be a Class 1 NIC charge but you will then have to consider whether a Class 1A liability may be due instead.
Class 1A liabilities mat become due instead when an individual falls under case 2 or 3, that is resident/not ordinary resident or not ordinary resident, this will depend on whether the options have been granted before or during their employment to the UK.
For further information on HMRC's residence rules you may wish to look at leaflet IR 20 - Residents and non-residents. Liability to tax in the United Kingdom (PDF 640K). This booklet describes the residence rules and how to work out whether or not you are resident in the UK for tax purposes.
Tax Bulletin 55 gives advice on the tax treatment of internationally mobile employees.
The following table has been prepared in order to assist you in considering what if any tax and NI liabilities may arise on these groups of workers.
| UK Residence status on date of Grant |
UK Residence status on exercise |
NIC treatment on exercise |
NIC due on exercise |
|---|---|---|---|
| Resident |
Yes - via PAYE |
||
|
|
No but EC Administration Agreement may apply - source of income |
|
|
|
No |
|
|
|
||
|
|
|
Yes - via PAYE if exercising after 1st 52 weeks of arrival |
| Resident/Ordinary Resident |
Not Resident |
Covered by UK legislation |
Yes - via PAYE on full amount chargeable to tax |
|
|
Covered by EU legislation |
No |
|
|
Covered by Reciprocal Agreement |
No |
|
|
Secondee from country with no Reciprocal Agreement with UK |
No, if exercising after 1st 52 weeks of departure from UK |
|
|
|
Yes, if exercising within 1st 52 weeks of departure from UK and subject to UK NIC before departure |
| Resident/Not Ordinary Resident |
Resident |
Covered by UK legislation |
|
|
|
Covered by EU legislation |
No |
|
|
Covered by Reciprocal Agreement |
No |
|
|
Secondee from country with no Reciprocal Agreement with UK |
No, if exercising within 1st 52 weeks of arrival |
|
|
|
Yes - via Class 1A if exercising after 1st 52 weeks of arrival |
| Resident/Not Ordinary Resident |
Not Resident |
Covered by UK legislation |
No |
|
|
Covered by EU legislation |
No |
|
|
Covered by Reciprocal Agreement |
No |
|
|
Secondee from country with no Reciprocal Agreement with UK |
No |
| Not Resident |
Resident |
|
None |
Class 1 National Insurance
As previously mentioned for a charge to occur the individual must have been resident and ordinarily resident, once this is established then we have to consider the individuals position at the time of an option gain. This falls into three categories, are they working in a country that has no Social Security agreement with the UK (Rest of the World - 'RoW'), are they on secondment to another member state in Europe (European Economic Area - 'EEA') or are the working in a country that does have a Social Security agreement with the UK.
Therefore depending on where they are at the time of the option gain will determine the appropriate NIC treatment.
The National Insurance Manual provides extensive information on the National Insurance treatment for persons coming or going abroad. Select one of the links below if you would like more information:
Class 1A National Insurance
Details of when Class 1 NICs are due on shares and share options can be found in booklet CWG2 (2002) Employer's Further Guide to PAYE and NICs.
In some circumstances, however, Class 1A NICs may be due. This will apply where an employee is not UK resident or, if they are resident, they are not treated as ordinarily resident in the UK, and they are provided by reason of employment with an option to acquire shares. There is guidance on this in the Employment Related Securities Manual.
