Given all the political and economic hullaballoo that followed the mini/maxi 2022 Budget and subsequent U-turns, it is easy to overlook the fact that the UK Chancellor announced that the proposed National Insurance Contribution increases would be reversed and that the Health and Social Care Levy (due to take effect in April 2023) would be abolished.

At the time of writing these policy announcements look set to continue.

A submarine liability?

Lurking beneath the surface like a Virginia class attack submarine, there is always the possibility that in addition to their being an income tax charge when shares are acquired by employees, an NIC charge might also pop up as well.

Whilst employees and their employers are used to paying NICs on staff wages, salaries and bonuses, NICs are also potentially due when employee shares are acquired or disposed of.

Readily convertible assets

For example, employment income that is provided in the form of something called a “readily convertible asset” (“RCA”) is effectively treated in the same way as cash. This means that the employer must account for:

1.income tax under PAYE;


2.class 1 employee and employer NICs.

An “asset” for these purposes is very broadly defined and normally includes employee shares.

An asset will be an RCA in a number of circumstances, including if:

1. trading arrangements exist, or are likely to come into existence, in respect of that asset; or

2. the asset is a share in a company which is under the control of a company which is not listed on a recognised stock exchange.

The definition of a trading arrangement and when it is considered “likely” that such trading arrangement will come into existence is not clear in the legislation or guidance. However, employee shares are almost always considered to be an RCA where there is a company sale already in existence or proposed.

Torpedoes away!

It can therefore come as something of a nasty surprise to discover that NICs may be due on the best estimate of the value of employee shares at the time of an exit, or possibly before then, if a different type of trading arrangement exists, such as a company call option or an employee benefit trust.

Furthermore, because it is possible in certain circumstances to transfer the employer NIC liability to employees (thereby increasing their effective rate of tax) the NIC liability then becomes a double NIC whammy for employees. 


In the context of employee shares, a reduction in NIC rates will of course reduce the overall effective tax rate for employees and employers alike.  But being aware of when an NIC liability might arise in the first place i.e., having good sonar, is an important pre-requisite for managing and preparing for all possible tax outcomes.