Changes from 1 May 2025 to the employer’s National Insurance contributions elections process

On 28 April 2025, HMRC announced a package of reforms aimed at simplifying UK tax measures.

One of the reforms concerns the elections process for employer’s National Insurance contributions (“NICS”).  An employer can, in certain circumstances, transfer employer’s NICs liability to an employee who acquires employment related securities from it.

From 1 May 2025, employers will no longer need to submit the election to HMRC for pre-approval (provided that – of course! – they use one of the new HMRC-approved standard forms for one or multiple employees).

Historically, the reason for entering into a formal election was driven by US GAAP, which used to require the NIC liability to be formally transferred to the employee to avoid the company having to account for the options on a ‘mark to market’ basis.  This is different to UK GAAP and international GAAP, where a mere agreement to indemnify is sufficient and options remain accounted for based on a valuation on the date of grant.

As a result, in the UK, one does not typically enter into a formal election for the transfer of employers’ NICs as it is easier to just obtain the indemnity.  While the tax position following the amendment to the NIC election process does change on paper, it the practical implications of this change are to that extent limited.

For most purposes, it is not possible for employers in the UK to transfer their NICs to employees anyway.  However, there is generally an exception for employee equity awards (including share options) where the obligation to pay employer’s NICs can either be formally transferred to the employee or the employee can simply agree to pay it when called upon by the employer.  The latter option is akin to a contractual indemnity, but the obligation to pay HMRC remains with the employer.

Historically again, companies that account under US GAAP standards would prefer an election as the formal transfer of liability reduced the risk that the stock options would be accounted for on a variable basis (i.e. the full cost of the stock on exercise would have to go through the profit and loss account). However, this no longer applies following changes made a number of years ago to US accounting practices.

Nevertheless, some companies, whether in the US or otherwise, prefer a formal transfer of liability to pay employer NICs to avoid having to rely on a contractual indemnity.  As above, it used to be the case that one needed to apply to HMRC for approval of the election, including the form of the election.

Going forward, companies will just use the templates approved by HMRC, as linked above, without having to get formal approval from HMRC.

This piece was written by Jeremy Glover and Alina Merchant-Mohamed.  As ever, if you have questions about any of the issues raised in this Insight piece or about tax matters generally then do please reach out to a member of the team here at HLaw.

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