EMI Option Scheme - what to do once the options have been granted!
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Joint NIC Election: what is it and how to get HMRC's approval

1. What is a Joint NIC Election and do I need one?

2. How to get HMRC's approval.

3. Difference between Joint NIC Election and S431 Election.

 

1. What is a Joint NIC Election and do I need one?


The NIC Election is only applicable for employees or directors (including NEDs) of the company who make a gain on exercise of employment related securities. As an employer you can legally agree with employees to transfer your employer's portion of National Insurance Contributions (NIC) liability to the employee on certain shares and share options. This is known as a joint National Insurance Contributions (NICs) election. 

Usually, in the case of EMI options, if the exercise price is the same as the EMI valuation agreed with HMRC then no taxes are due for either the employee or the company. However, NIC might arise in instances where EMI options are granted at a discounted price or they are exercised after a disqualifying event. Signing the NIC Election ensures any contributions arising from the exercise remains the employee’s responsibility. Thus, when the NIC becomes payable under this election, the option holder is accountable for making the full payment, although this is typically still facilitated through the employer, who simply receives reimbursement from the option holder.

In conclusion, an NIC Election is a useful tool for employers who want to manage their National Insurance Contributions more effectively and reduce the risk of unexpected payments. Transferring National Insurance Contributions means that the company will not have unpredictable and uncapped National Insurance payments when there is a chargeable event. 

You do not have to sign the NIC Election if you do not want to transfer the NIC liability to your employee. 

However, if you do wish to transfer it, the NIC Election must be approved by HMRC first before it can be signed and it must be signed before an exercise of options, so it’s recommended that the approval is obtained in advance. 

2. How to get HMRC’s approval

 

NOTE: This is a step-by-step guide on the NIC Election for an individual employee. If you wish to get approval for multiple employees you can access the 2-part Joint NIC Election form on the GOV.UK website here

If you already have an approved Joint NIC Election for your employee (for example as a result of a previous grant), you do not need another one. 

When creating an option grant on the platform, you will see that there are two documents that need to be signed, this is 1) the option agreement which must be fully signed within 7 days of the date of grant and 2) the Joint NIC Election which can be signed anytime between the date HMRC approves it and up to 14 days after the options have been exercised.  

As previously mentioned, the NIC Election must be approved by HMRC first, before it is signed by the company and the option holder.

We provide you with a cover letter and the NIC Election, which you can send to HMRC for approval. To obtain these, simply click on 'Set Details' as shown below:




Step 1: Complete the Cover Letter details. 


Here, add your name or a person’s name from the company who should receive the approval confirmation. Please also add  the PAYE reference number. Leave the NINO section blank for now, this is because HMRC requires a blank NIC Election before the approval. Add the NINO after the approval so the platform pulls through the individual's personal details in the Election.



Step 2: Click ‘done’ and then create the document. Do not sign just yet, as it will need to be approved by HMRC first.


Step 3: Download the NIC Election document as well as the option holder’s fully signed option agreement. 


Send both the NIC Election and fully signed option agreement to HMRC using this email address: shareschemes@hmrc.gov.uk.


Step 4: Once the NIC Election is approved please hop back on the platform, add the NINO number as per section 1 above and ensure the NIC Election is signed by both the company and the option holder ideally before options are exercised, or within 14 days of the options exercise latest.

3. Difference between Joint NIC Election and S431 Election

 

We often get asked about the difference between the NIC Election and S431 Election. Below is a quick summary of the two and you can also read more about this in our blog post: S431 and NIC tax elections: what are these forms for share option holders?




Read more:  S431 and NIC tax elections: what are these forms for share option holders?

As always with SeedLegals, we're here to support you every step of the way, so if you get stuck or need a bit of help reach out to your Options Scheme Owner directly or use the chat bubble at the bottom right.