Employees of hi-tech companies who make a killing when they cash in their share options but leave their firms with crippling National Insurance (NI) bills could soon be forced to pick up the tab.

Plans expected to be unveiled by Chancellor Gordon Brown this week will shift the burden from bosses to staff.

Hi-tech companies, particularly dotcom startups, have long complained about the tax treatment of share option schemes that have not been officially approved by the Inland Revenue.

Such schemes, although often vital to attracting key staff, have an in-built disadvantage in that when employees cash their shares, the profits are deemed to be income for corporate tax purposes - rather than capital gains, as with approved schemes.

That, in turn, means that companies are forced to pay an employer's NI levy on top, equivalent to 12.2 per cent of the gains made by shareholding staff. With the soaring price of many dotcom stocks in recent months, such bills can be crippling.

Auction house QXL.com alone had to set aside around £15m for NI after staff recently cashed in their shares. Now, after pressure from other technology companies - said to include Psion and chip maker ARM - Chancellor Brown is expected to switch the NI onus to workers.

For some employees the changes could be financially devastating given that they was still have to pay normal tax at the top rate of 40 per cent when they exercise the right to sell stock.

Some accountancy experts have already described the idea of employers transferring their NI cost to staff as "bizarre". However, others say that while it is not an elegant solution, at least it is practical if only because the previous NI rulings threatened the very survival of many startups.

What also remains unclear is whether employers will insist on staff paying NI under the new arrangement, even if they have the right to compel them.

One option, as outlined by the Chancellor in his recent Budget, would be to take advantage of a new concession whereby hi-technology startups can grant share options of £100,000 ($153,000) to up to 15 essential personnel under the Enterprise Management Initiative.

This means that employers will be able to give staff up to £3000 worth of shares each year, free of tax and NI levies, and some of which can be awarded for reaching performance targets.

This story has been republished from uk.internet.com

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