Effective as of April 6, 2011, the main rate of employee National Insurance contributions ("NICs") increased by 1% to 12% with the additional rate for earnings above the upper earnings limit (£43,888) also increasing by 1% to 2%. The rate of employer NICs also increased by 1% to 13.8%. These increases affect and therefore increase the effective rate of tax for higher paid employees in plans that are not tax favored.

In addition, effective as of April 6, 2011, the tax rate for NICs for employees who are subject to the 50% tax rate for high earners that was introduced last year is as follows:

If an individual paying income tax at the additional rate of 50% (on earnings above £150,000 per annum) assumes all employer NICs on the exercise of an option/RSU or chargeable event that permits the employee to transfer or reimburse employer NICs, his effective rate of combined employee and employer NICs and income tax on the option gain will be 58.9%, calculated as follows:

Employer NICs on 100% of gain = 13.8%

Employee NICs on 100% of gain = 2%

Additional rate tax (at 50%) on (100 - 13.8) percent of gain (relief for employer NICs) = 43.1%

Total = 13.8 + 2 + 43.1 = 58.9%