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HMRC internal manual

Employment Income Manual

Deductions: directors'; and officers'; liabilities: qualifying contracts of insurance: excluded contracts: connected contracts

Section 350 ITEPA 2003

The “connected contract” exclusion at EIM30513 is essentially an anti-avoidance provision to prevent value shifting from a non-qualifying contract that may or may not be a contract of insurance to a qualifying contract of insurance. However, it does not operate to disqualify an insurance contract merely because that contract is connected with an ordinary contract of employment.

For this purpose a contract is connected with another contract if:

  • either was entered into by reference to the other with a view to enabling or facilitating the other to be entered into on particular terms, or
  • the terms on which one of them was entered into would have been significantly different if the other did not exist and was not in contemplation. This does not apply if:

For example, a number of companies in a group may together take out policies that are otherwise qualifying contracts of insurance at premiums of, say, £900 each. But because the policies are identical and are entered into as part of a single transaction the premium £900 incorporates a discount of 10 per cent on the premium that would have been charged if the policies had been taken out separately. Although the contracts are all connected with one another exclusion in the second bullet above does not apply and they remain qualifying.

    • none of the connected contracts would be disqualified by one or more of the other exclusions and
    • the only significant difference between the terms that actually apply and those that would have applied consists in one or more reductions in individual premiums attributable to the fact that the contracts taken together provide cover against a composite block of risks.