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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income provided through third parties: the Section 554A gateway

Section 554A ITEPA 2003

Conditions 1, 2 and 3
Extent of conditions 2 and 3
Arrangements that meet conditions 1 and 2 or conditions 1 and 3
Conditions 4 and 5
Meaning of ‘connection’ in condition 5

The Part 7A rules will only apply if the arrangement has come through the Section 554A gateway.

It will come through the Section 554A gateway if:

  • it meets conditions 1, 2, 4 and 5, or
  • it meets conditions 1, 3, 4 and 5.

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Conditions 1, 2 and 3

Conditions 1, 2 and 3 apply to the arrangement itself.

  • Condition 1 Section 554A(1)(a). A person (‘A’) is an employee, or a former or prospective employee, of another person (‘B’). In this guidance, ‘A’ and ‘B’ have those meanings.
  • Condition 2 Section 554A(1)(b) and (c)(i). There is an arrangement (‘the relevant arrangement’) to which A (or any person ‘linked’ with A see EIM45860) is a party and it is reasonable to suppose that, in essence, the arrangement is:

    • wholly a means of providing,
    • partly a means of providing,
    • otherwise wholly concerned with the provision of, or
    • otherwise partly concerned with the provision of,

rewards, recognition or loans in connection with:

* A’s employment with B,
* A’s former employment with B, or
* A’s prospective employment with B.
  • Condition 3 Section 554A(1)(b) and (c)(ii). There is an arrangement (‘the relevant arrangement’) which:

    • otherwise (wholly or partly) covers or relates to A (or any person linked with A), and
    • so far as the arrangement covers or relates to A, it is reasonable to make the same supposition as in condition 2.

On ‘arrangement’ in conditions 2 and 3, see EIM45855.

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Extent of conditions 2 and 3

For the purposes of conditions 2 and 3, it does not matter if the relevant arrangement does not include details of the steps which will or may be taken in connection with providing (in essence) rewards, recognition or loans.

For example, for the purposes of conditions 2 and 3, it does not matter if the relevant arrangement does not include details of:

  • any sums or assets which will or may be involved, or
  • how or when or by whom or in whose favour any step will or may be taken.

Conditions 1, 2 and 3 are thus very widely drawn indeed.

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Arrangements that meet conditions 1 and 2 or conditions 1 and 3

There is no single prescribed form of arrangement that meets these conditions.

But, if an arrangement meets condition 1 and either condition 2 or condition 3, that does not necessarily mean that it has come through the Section 554A gateway. It will not come through the Section 554A gateway unless and until a step has been taken which meets conditions 4 and 5.

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Conditions 4 and 5

Conditions 4 and 5 apply to the step taken.

  • Condition 4 Section 554A(1)(d). A ‘relevant third person’ (see EIM45035) takes a ‘relevant step’ (seeEIM45055 onwards).
  • Condition 5 Section 554A(1)(e). It is reasonable to suppose that, in essence:

    • the relevant step is taken (wholly or partly) in pursuance of the relevant arrangement, or
    • there is some other connection (direct or indirect) between the relevant step and the relevant arrangement.

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Meaning of ‘connection’ in condition 5

In condition 5, the relevant step is connected with the relevant arrangement if (for example) the relevant step is taken (wholly or partly) in pursuance of an arrangement at one end of a series of arrangements with the relevant arrangement being at the other end.

It does not matter if the person taking the relevant step is unaware of the relevant arrangement.

However, this does not mean that the connection with the relevant arrangement can never be broken. It must in all cases be reasonable to suppose that the step is taken either in pursuance or in connection with the arrangement to provide A with rewards, recognition or loans in connection with A’s employment.