ACCA Advanced Taxation (ATX) Practice Exam

When are NICs charged for non-tax advantaged schemes if the shares are readily convertible into cash?

1. Only quoted shares incur NICs

2. No NICs for either quoted or unquoted shares

3. Only unquoted shares incur NICs

4. Quoted shares incur Class 1 NICs

The correct answer is: Quoted shares incur Class 1 NICs

Non-tax advantaged schemes that involve the transfer of shares subject to National Insurance Contributions (NICs) primarily focus on whether the shares are readily convertible into cash and their classification as quoted or unquoted. In the case of quoted shares, these are shares that are listed on a recognized stock exchange and, therefore, can be easily bought and sold, providing liquidity. When quoted shares are transferred under non-tax advantaged schemes, they will incur Class 1 NICs due to their nature of being readily convertible into cash. This is because NICs apply to any employment-related securities that meet certain conditions, including those that can be quickly sold for cash. On the other hand, unquoted shares are not listed on any stock exchange and are typically harder to trade and convert into cash. As a result, they do not attract NICs in the same manner as quoted shares. This distinction is crucial in understanding how NICs apply in various scenarios related to share transfers. Therefore, quoted shares indeed incur Class 1 NICs when they are part of non-tax advantaged schemes, making the choice indicating that fact the correct response.