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HMRC internal manual

Employment Income Manual

Exemption for amounts which would otherwise be deductible: Anti avoidance

S289E ITEPA 2003

If the main purpose, or one of the main purposes, of an arrangement to pay or reimburse expenses or benefits under the terms of this exemption is the avoidance of tax or national insurance contributions the exemption will not apply.

The anti-avoidance provisions will apply if conditions A to C are met.

Condition A is that under the terms of the arrangements an amount is paid or reimbursed to the employee in respect of expenses, or is treated as earnings of the employee as a result of the provision of a benefit which, but for this section would have been exempt from charge to tax and/or NICs.

Condition B is that in the absence of the arrangement the employee would have received a greater amount of either general earnings or specific employment income in respect of which tax and/or NICs would have been payable.

Condition C is that the purpose of the arrangement, or one of the main purposes of the arrangement, is the avoidance of tax or NICs.

Where conditions A to C are met, the exemption for paid or reimbursed expenses and the exemption for other benefits will not apply. The payment or reimbursement of expenses and the provision of benefits in these circumstances will need to be subject to tax and/or NICs in the normal manner.