Source: http://www.hmrc.gov.uk/manuals/eimanual/eim45000.htm
Timestamp: 2013-05-25 10:23:53
Document Index: 495638281

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EIM45000 - Employment income provided through third parties: overview, general approach: contents
EIM45000 - Employment income provided through third parties: overview, general approach: contentsPart 7A ITEPA 2003, Schedule 2 FA 2011
OverviewGeneral approachContents
gives an overview of the tax legislation on employment income provided through third parties,
sketches the general approach you should take to cases, and
sets out the structure of this guidance.
The tax legislation on employment income provided through third parties tackles arrangements which:
The legislation also deals with pension schemes which are not registered pension schemes.
Broadly speaking, if third party arrangements are used to provide for what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former, or future employment, then an income tax charge arises.
The rules contain detailed exclusions. These prevent the legislation from catching certain arrangements. Generally, the exclusions are targeted at arrangements which are not tax avoidance arrangements.
If the legislation applies, it deems an amount to count as employment income.
The amount that counts as employment income is specifically brought within the scope of PAYE.
Special rules deal with (for example) the interaction with the remittance basis.
The legislation applies to 2011-12 and later tax years. There are transitional rules. These include anti-forestalling rules which cover certain transactions carried out in the period from 9December2010 to 5 April 2011 inclusive.
Top of pageGeneral approach
First, although specialists often refer to it as the ‘disguised remuneration’ regime, Part 7A ITEPA 2003 is headed ‘Employment income provided through third parties’. Therefore, if you are looking at a case in which the employer is providing something directly to the employee, and there is no third party involved, then Part 7A will not apply.
There are two exceptions to this general rule. Part 7A can apply where the employer is acting as a trustee. But this situation will be unusual.
Part 7A can also apply as a result of steps taken by an employer when there is an undertaking that contributions will be paid to a relevant third person comprising an unregistered pension arrangement.
Arrangement through Section 554A gateway?
An arrangement will not give rise to Part 7A income unless it ‘comes through the Section 554A gateway’ and thus meets the conditions for Part 7A to apply.
There are three fundamental questions you need to ask at this point.
First, is there an arrangement which might come through the Section 554A gateway?
If the answer to that is No, then the situation you are considering cannot give rise to Part 7A income.
Second, if there is such an arrangement, has a ‘relevant third person’ taken a ‘relevant step’?
If the answer to that is No, then the arrangement has not come through the Section554A gateway and has not given rise to Part 7A income.
Third, is it reasonable to suppose that the ‘relevant step’ is connected with the arrangement in question?
If an arrangement has come through the Section 554A gateway, that does not necessarily mean that it has given rise to Part 7A income.
Part 7A does not include a general overriding purpose test. Instead, it has a number of specific exclusions. These exclusions cut down the scope of Part 7A considerably. Check carefully to see if at least one of the exclusions applies.
For example, there is an exclusion whereby no step taken under a registered pension scheme can give rise to Part 7A income.
Part 7A income
If the arrangement you are looking at has come through the Section 554A gateway, and is not covered by any of the exclusions, then it will give rise to Part 7A income.
The Part 7A income:
counts as employment income of the employee, and
is deemed to be PAYE income paid by the employer.
The general rule is that the amount of the Part 7A income will be the value of the relevant step. But there are rules which in certain circumstances will adjust this value, possibly down to nil.
EIM45001
Summary of structure of guidance
EIM45005
EIM45010
EIM45025
The Section554A gateway
EIM45030
Meaning of ‘relevant third person’
EIM45045
Group exception: examples
LLP exception: examples
EIM45055
How Sections 554B to 554D are related
EIM45060
EIM45065
Payment of sum of money
EIM45070
Employment income provided through third parties: relevant steps: Section554C: sum of money or asset made available
Making asset available for relevant person to benefit from
EIM45085
Events before 6 April and after 5 April 2011: examples
‘relevant person’ in Sections554C and 554D
EIM45095
Section 554B: earmarking etc of sum of money or asset
EIM45100
Relevant third person not aware of all the facts
EIM45105
Shares from various sources
EIM45106
Using options to hedge share awards
Section 554B: meaning of ‘earmarked’ in Section 554B(1)(a)
EIM45115
Relevant step within Section 554B, later relevant step within Section 554C or 554D, exclusions within Section 554E onwards
EIM45120
Examples: loans
EIM45125
Examples: EBTs
Examples: various (2)
EIM45135
Examples: dividends
EIM45140
Earmarking etc by employers etc
EIM45155
Provision of security by employers etc
EIM45160
EIM45001 explains the structure of this guidance. In particular, it tells you about the pages after EIM45165.
EIM11813 explains the PAYE implications of the Part 7A rules.