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HMRC have published its Spring Tax Update 2025, which contains a number of tax simplification changes taking effect from the start of this tax year or in later months.
United Kingdom
Employment and HR
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HMRC have published its Spring Tax Update 2025, which contains a
number of tax simplification changes taking effect from the start
of this tax year or in later months.
As part of this update HMRC have confirmed that, from 1 May
2025, employers no longer need to obtain pre-approval for their
employer NICs joint election forms for employment-related
securities, provided they use HMRC’s published model template
(either a one-part election for use for a single
employee, or a two-part election for use for multiple
employees).
Companies remain free however to use their own form of election
should they wish, and the HMRC pre-approval requirement continues
to apply in that case. Further HMRC guidance can be found here.
It has long been possible for an employer to transfer its
liability to secondary (employer) Class 1 National Insurance
contributions (NICs) arising on certain taxable events relating to
employment-related securities to the employee concerned, via one of
two methods:
- Employer NICs joint election – the
employer may formally transfer the relevant employer NICs liability
away from itself and onto the employee; however, in practice the
employer remains responsible for collecting the employer NICs from
the employee and remitting this to HMRC;
- Agreement to bear employer NICs – the
employer and the employee may agree by way of simple agreement
(typically contained in the applicable share award agreement) for
the employee to reimburse the employer for the cost of the employer
NIC’s liability. The liability would remain with the employer,
but the employer would have the right to recover this cost from the
employee. There is no need for this wording to be pre-approved by
HMRC.
In either case, the employee is entitled to a deduction equal to
the amount of employer NICs passed on to them when working out the
amount chargeable to income tax on the relevant taxable event.
Common taxable events on which the employer NICs pass-on methods
can be used include the acquisition of shares under certain types
of share options or other share awards which constitute rights to
acquire shares, among certain others.
The employer NICs pass-on mechanism can help to make share
incentives more affordable for companies to offer, and provides a
unique cost-saving mechanism for employers that isn’t available
in connection with cash-based incentives.
The accounting treatment of the two approaches will be different
and there may be advantages to using the joint election approach
for some companies. It has traditionally been common for US
companies in particular to use the joint election method.
Companies wanting to incorporate employer NICs pass-on rights
into their employee share award documents are recommended to seek
specialist advice about when they can do this and how to do this
effectively. A review of the award terms to confirm the nature of
the underlying award, and potentially some modifications, may be
necessary before employer NICs pass-on rights may be
incorporated.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
