§ Mr. Denham
We are proposing two changes to National Insurance contribution rules which will bring them closer to the income tax rules in relation to shares and share options. This will make for greater clarity for employers and help reduce the administrative burden the system places on them.
First, we intend to bring forward at Report stage in the House of Lords a new clause for inclusion in the Social Security Bill. That clause will change the National Insurance treatment of shares that are subject to the risk of forfeiture or that are convertible. The change will align the treatment of these shares under National Insurance legislation with the tax legislation announced by my right hon. Friend the Chancellor of the Exchequer in his Budget.
Alignment of National Insurance with the income tax rules will bring forward some important changes to make the National Insurance on shares and options easier for business to administer while guarding against their use in avoidance schemes.
The new clause will be tabled as soon as possible.
It will mirror the proposed income tax treatment of remuneration in shares subject to forfeiture or conversion. To keep to a minimum the period over which the tax and National Insurance positions differ, the clause will apply to shares awarded from the date on which it is tabled. We expect that to be before the end of the current Committee stage in the House of Lords.
The second change we propose is to match my right hon. Friend the Chancellor's extension of the "seven year rule" for share options when we align the National Insurance treatment of share options with the income tax position. Under the current income tax arrangements the award of an option over shares is taxed at the time of grant rather than exercise only where the options can be exercised more than seven years later. My right hon. Friend the Chancellor has announced his intention to extend that limit to ten years. We intend to mirror this in future National Insurance legislation. When the relevant regulations made under clause 50 of the Social Security Bill come into force they will replace the National Insurance liability on grant of options with a liability on exercise, except in the case of options which can be exercised more than ten years later. This would take the great majority of options outside liability for National 484W Insurance on grant, thus reducing the administrative burden on business while continuing to protect the Exchequer.
Inland Revenue approved own-company share schemes remain excluded from liability for National Insurance contributions.