NICs Joint Elections – HMRC clarification of approval requirementsMonday, November 24th, 2008
Employers and their employees may enter into Agreements or Joint Elections in order to allow an employee, in anticipation of NICs liabilities arising on share option gains, to agree to meet the employer’s Class 1 NICs liabilities. The Joint Election approach involves a document that legally transfers the liabilities to the employer but only if it has HMRC approval.
Although the model document provided by HMRC includes all of the necessary legislative elements in order for approval to be given, they must still be submitted for approval, even if the standard document is used. HMRC has recently commented on some election documents that have also included elements that are not within the scope of the legislation and do not, therefore, require HMRC approval. HMRC cannot recognise or approve terms or clauses that are not a requirement of the legislation. Examples of such clauses are:
- Transfer of employment within the group whereby the secondary contributor changes and the employee undertakes to enter into a new election with the new employer. This is not necessary as the joint election remains in force even if employment ceases.
- An indemnity in favour of the company against any expense incurred if the employee fails to satisfy their liability for secondary NICs. This expands the scope of the joint election and cannot be approved. If the company requires such an indemnity then it should be included within the option agreement or other similar document which does not require HMRC approval.
- A power of attorney in order to enable enforcement of either of the above or any other aspect of the election. This again expands the scope of the election and cannot be approved. If required, it should be included in the option agreement or other similar document and could also be used to implement the joint election if required.
From 1 December 2008, approval will not be given for draft elections that include additional elements that are not required by the legislation or essential for the implementation of the election.
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