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HMRC internal manual

Employment Income Manual

Employee Ownership Trusts: qualifying bonus payments: service companies

Section 312G ITEPA 2003

Section 312B excludes service companies from being able to make qualifying bonus payments to its employees. The purpose of section 312G is purely to define what a service company is. 

The first definition relies on the meaning given in section 61B ITEPA 2003 to managed service companies. Full details of the conditions of that section are given in the Employment Status Manual at ESM3510. Any companies that meet that those conditions will be service companies and unable to make qualifying bonus payments.

The second definition is an anti-avoidance measure which is intended to prevent artificial structures being set up to manipulate the qualifying bonus provisions. It relies on 2 conditions being met by the company.

The first condition is that the business carried on by the company (SC) consists substantially of the provision of the services of its employees.

The second condition is that the majority of its services are supplied to companies or persons who either own or used to own the SC or employ or used to employ its staff (PC). Where this happens and PC is in a separate group to SC, then SC meets the definition of a service company and will be unable to make qualifying bonus payments.