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Step By Step Guide To Setting Up Your Joint NIC Election

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

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, 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 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

When creating an option grant on the platform, you will see that there are two documents that need to be signed, this is the option agreement which must be fully signed within 7 days of the date of grant and the NIC Election.  

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

As such, we provide you with a cover letter and the NIC Election, which you can send to HMRC for approval. To obtain this, simply click on the pencil on the right hand side, 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 NINO and PAYE reference number of the option holder.

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 and ensure the NIC Election is signed by both the company and the option holder before options are exercised.

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: EMI or Unapproved Share Option Scheme – which is best for you? | SeedLegals

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.