UT/2021/000192 - [2024] UKUT 00242 (TCC)

This point concerns the way HMRC responded to UBS’s point that it would be more efficient for HMRC to deal with Mr Wood rather than UBS in relation to Mr Wood’s tax liability. HMRC’s response was that exercising the 7A discretion would not be able to remove UBS’s liability for NICs. In other words HMRC were saying exercising the 7A discretion would not realise the benefits they understood UBS hoped for namely extricating itself from the dispute. The November 2022 decision explained this as follows:

“To date we have not discussed NICs directly, however where there is a chargeable event under section 476 ITEPA 2003 this would also be remuneration derived from employment under section 4(4)(a) Social Security Contributions and Benefits Act 1992 (SSCBA 1992). It therefore attracts a liability to Class 1 National Insurance Contributions. Where, as in this case, the securities are also ‘readily convertible assets’ both the income tax and the NIC are accountable via PAYE.

UBS AG, as the secondary contributor, is liable for the Class 1 Secondary NICs arising from any gain on the securities option, and is also liable in the first instance to pay any Class 1 Primary NICs under paragraph 3(1) of Schedule 1 to SSCBA 1992. Unlike for tax, neither Regulation 72(5) of the PAYE regulations 2003 nor section 684(7A)(b) ITEPA 2003 can apply to remove the liability to pay National Insurance Contributions from the secondary contributor.

For the avoidance of doubt, on the basis of the information seen to date I do not consider that the conditions of Regulation 86 SSCR 2001 would apply here either. Therefore, we consider UBS AG and Mr Wood need to work with HMRC to agree the valuation and apportionments affecting the amount of tax and NICs due, in particular as UBS AG will be liable to pay any NICs due. HMRC considers that any decision about the application of s684(7A)(b) at this time would not assist the parties in bringing these matters towards conclusion.”

UBS argues HMRC’s response that UBS remained liable was a misdirection in that UBS’s NICs liability would, because of the relevant legislation, be dependent on Mr Wood’s ultimate employment tax liability. It would thus, contrary to HMRC’s assumption, realise the efficiency UBS sought. (UBS explains that the NICs charge in relation to securities options arises under s4(4)(a) of the Social Security Contributions and Benefits Act 1992 (“SSCBA”). This provides that “there shall be treated as remuneration derived from an employed earner’s employment” for the purposes of s3 of the SSCBA, the amount of any gain calculated under s479 ITEPA that counts as the employment income of the earner under s476 ITEPA, reduced by any amounts deductible under ss480(1) to (6) ITEPA in arriving at that amount). There is no equivalent to the s696 “best estimate” amount.

We agree with UBS that HMRC’s analysis proceeded on a misdirection. To the extent the efficiency arguments pointed in favour of exercising the 7A discretion then the fact the 7A discretion would not remove the NICs liability from UBS did not detract from the efficiency savings advanced. UBS’s NICs liability will therefore be determined by the amount on which Mr Wood is ultimately taxed as employment income, irrespective of the amount of income tax that UBS accounted for, or should have accounted for, on the basis of the best estimate which could reasonably be made.