The use of tax indemnities in share scheme documents

Produced in partnership with Karen Cooper of Cooper Cavendish

Practice notes

The use of tax indemnities in share scheme documents

Produced in partnership with Karen Cooper of Cooper Cavendish

Practice notes

Introduction

A tax indemnity enables an employer to recover amounts of income tax and National Insurance contributions (NICs) from an employee, usually in a variety of different ways to provide flexibility for both parties. In the share scheme context, they are particularly important as an employer may well have to account for significant liabilities to HMRC which could leave the employer exposed without an enforceable means of recovery.

Where an income tax liability arises in relation to employment related securities or securities options, even though no cash benefit is received, an employer may still have an obligation to account for that income tax to HMRC. In general, the obligation arises if the employment related securities are 'readily convertible assets' (RCAs) or deemed RCAs at the time of the taxable event, or if the employee receives cash or RCAs in connection with them. For further details of when shares will be RCAs, see Practice Note: Share options and readily convertible assets.

In addition, there will be an obligation for the employer to account

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Karen Cooper

Cooper Cavendish

Karen is an experienced employee benefits lawyer with more than 20 years’ experience in advising companies of all sizes in relation to their employee benefit and remuneration issues. She trained and worked for leading law firms Baker McKenzie LLP and Linklaters LLP and spent three years as a remuneration consultant at Ernst & Young LLP. Prior to co-founding Cooper Cavendish, Karen headed up Osborne Clarke LLP's employee benefit practice for 15 years.

Karen is a thought-leader and regularly speaks and presents at industry conferences and events. She is a member of the Small Quoted Companies Alliance Share Scheme Committee and the Share Plan Lawyers Organisation.

Karen is also the author of a wide range of legal publications including the chapter on executive remuneration in Sweet & Maxwell’s ‘Corporate Governance’, the chapter on employee share schemes in Jordan’s Company Administration and she contributes regularly to Tax Journal. She is ranked as a leading individual on employees share schemes in Chambers and Partners and was recognised in the 2015 International Tax Review Women in Tax Leaders (a comprehensive guide to the world’s leading female tax advisers).

Jurisdiction(s):

United Kingdom

Key definition:

National Insurance Contributions definition

What does National Insurance Contributions mean?

Payments deducted from pay or declared through self-assessment, used by the DWP to fund the state pension and other state benefits, ie paid or credited contributions to the National Insurance Fund.

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