NIC's – Four weeks left to make significant savings

The Social Security Contribution (Share Options) Act 2001 received Royal Assent on Friday, 11 May 2001. This new legislation enables employers to settle the employer's secondary Class 1 national insurance contributions ("NICs") arising on share options granted during the period from 6 April 1999 to 19 May 2000 inclusive. The NIC's liability will be calculated using the price of the shares under option at 7 November 2000. Once the NICs have been settled, there will be no further liability to NICs at the time the options are actually exercised.

Should you settle your NIC's Liability?

This is a limited opportunity for you to cap your NIC's liabilities. Set out below are some of the issues which may be relevant for you in deciding whether savings can be made:

• Did you grant options between 6 April 1999 and 19 May 2000?
• Have any of those options been exercised already and, if so, when?
• Do you expect all the options to be exercised?
• Are your shares readily convertible assets?
• What was the share price on 7 November 2000?
• Is your share price increasing steadily, or did it reach a peak on 7 November 2000 and drop subsequently?
• What is the expected trend for your share price?
• Have cash cancellation payments been offered for any Inland Revenue approved options granted between 6 April 1999 and 19 May 2000?
• Have any options granted between 6 April 1999 and 19 May 2000 been rolled over?
• Have you and your employees made a joint election transferring the NIC's liability to the employees or have the employees simply agreed to reimburse the amount to you?

The Act may enable you to make significant savings on NICs, but you will need to review your position carefully before acting.

What you need to do over the next four weeks

In order to settle the NIC's liability, employers have just four weeks to take action:

• notify the Inland Revenue that they wish to settle the NICs; and
• pay the NICs which are due within 92 days of Royal Assent of the Act, i.e. before 11 August 2001.

This is a once and for all opportunity to settle your NIC's liability. If you do not act before 11 AUGUST 2001, that opportunity will be lost.

Why us?

Our dedicated team of share option lawyers has significant expertise in share option plans of all types. The team is available to advise whether a decision to settle your NIC's liability is likely to be advantageous to you.

Further information

There is still time for you to take action. If you have any questions or require any further information or advice about the Act please contact:

Kate Kelleher, partner

tel: 020 7367 2860, e-mail: [email protected]

Sue El Hachmi, assistant

tel: 020 7367 2565, e-mail: [email protected]

Stuart Hale, assistant

tel: 020 7367 3102, e-mail: [email protected]