Income Tax (Earnings and Pensions) Act 2003 section 481

Relief for secondary Class 1 contributions met by employee

Section 481 provides income tax relief for employees who bear the cost of their employer's secondary Class 1 National Insurance contributions arising from gains on employment-related securities.

• Where an employee meets the employer's secondary Class 1 National Insurance contributions on a securities-related gain, either through a recovery agreement or a liability transfer election, the employee can claim a deduction from the amount otherwise taxable as employment income.
• The relief equals the total of amounts recovered by the employer before 5 June in the tax year following the year the gain is realised, plus any liability transferred to the employee under an approved election.
• If HMRC withdraws approval of a liability transfer election, the relief is capped at the amount the employee actually paid before 5 June in the tax year following the gain, and relief is not available where Class 1 liability has been replaced by a special contribution under the Social Security Contributions (Share Options) Act 2001.
• Although the relief reduces the amount subject to income tax, it does not reduce the figure used to calculate National Insurance contributions or the relevant employment income figure used for the purposes of the recovery agreement or liability transfer election under the Social Security Contributions and Benefits Act 1992.