Unwary employers who granted Unapproved Share Options to their employees after 6th April 1999 are liable for National Insurance Contributions on the increasing value of the options, warns Clive Gawthorpe, a partner at the Manchester office of national accountancy group Hacker Young.

The increase in the value of the options will be calculated from the date when the employees actually received them.

However, legislation was introduced recently under the Finance Act to allow any company that issued Unapproved Share Options between 6th April 1999 and 19th May 2000 to limit their NIC liability. These companies will be allowed to settle these unpredictable national insurance liabilities, calculated on the increase in the value of the options from the date they were issued up until 7th November, 2000.

“Unfortunately, this limitation is not available automatically,” stresses Gawthorpe, “Affected companies need to apply for this treatment.”

But the clock is running. “You only have 92 days from the date on which the Finance Act was approved, on 11th May 2001, to elect for this treatment. That means by close of business week-ending August 10th, 2001” says Gawthorpe.

“If your company issued Unapproved Share Options during the period in question, I strongly advise that you elect to limit your companies NIC liabilities before the August 10th deadline. If you don’t, the size of your on-going NIC liabilities will be a ‘moveable feast’, based on the vagaries of your share price.

“A sudden surge in the value of shares, due to a flotation or imminent disposal, for example, could bring a very nasty NIC sting in its tail.”