We’ll prepare these documents for your EMI and non-qualifying options, but we thought some background would be helpful.
Section 431 joint election
The section 431 joint election is a document signed by the company and an employee regarding the tax treatment of shares which are bought by the employee on exercise of an option.
The legislation is complicated but broadly the election is trying to ensure that any future growth in value of the shares following exercise of an option is taxed as capital, not income. To be effective, the employee and the company should sign the election no more than 14 days after exercise of the option, but we recommend that it is signed sooner rather than later.
A copy of the section 431 joint election should be kept by both the employee and the company in case of any subsequent tax enquiry. It doesn’t need to be filed with HMRC. We will sort out the section 431 joint election documents for you following signature of the option documents.
NICs joint election
The NICs joint election is signed by the company and an employee to agree to transfer the liability for paying the employer’s share of National Insurance contributions to the employee.
In the case of EMI options, if the exercise price is the same as the EMI valuation agreed with HMRC, no National Insurance contributions are due for either the employee or the company. However, they might arise where options are exercised after a disqualifying event. By transferring the National Insurance contributions, the company won’t have unpredictable and uncapped National Insurance payments if there is a chargeable event.
This election can be signed anytime, but a form of the NICs joint election has to be submitted to HMRC for approval (which is usually done within 14 days of receipt) before signature.
A copy of the NICs joint election should be kept by both the employee and the company in case of any subsequent tax enquiry. We will sort out the NIC joint election documents for you following signature of the option documents.
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Please Note: This article contains general information only and Simply Equity is not, through this article, issuing any advice, be it legal, financial, tax-related, business-related, professional or other. This article is not a substitute for professional advice and should not be used as such. Simply Equity does not assume any liability for reliance on the information provided in this article.