HMRC recently commenced a consultation procedure on whether to discontinue the practice of formally approving joint elections whereby companies granting equity compensation awards to employees in the United Kingdom are allowed to transfer the employer portion of National Insurance Contributions (“NICs”) to award recipients. Companies and award recipients would continue to be able to transfer employer NICs by written agreement (typically as part of the equity compensation award agreement itself), but formal joint NIC elections approved by HMRC would be eliminated as a cost-savings measure (given the labor-intensive nature of the approval process). The purpose of the consultation procedure is to determine whether any accounting or other benefits would justify retaining the formal HMRC approval process.
By way of background, companies and equity compensation award recipients can transfer responsibility for employer NICs in one of two ways. If the employer NICs are transferred to the award recipient by agreement, the company effectively is entitled to repayment of the employer NICs from the award recipient but remains ultimately liable to HMRC if the award recipient fails to pay such amounts.
By contrast, if the employer NICs are transferred to the award recipient by means of a formal joint election approved by HMRC, sole responsibility for paying the employer NICs is transferred from the company to the award recipient and as a result, the company is no longer responsible for the payment of the employer NICs if the employee fails to pay them. For this reason, most companies have preferred to transfer the employer NICs by way of a formal joint election approved by HMRC.