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HMRC internal manual

Employment Income Manual

Employment income provided through third parties: meaning of 'relevant third person': LLP exception: examples

Section 554A(7), (9) and (10) ITEPA 2003

In certain circumstances, the LLP exception cuts down the scope of the term ‘relevant third person’. See EIM45035.

Here are some examples to show how the LLP exception works.

Example: employee of LLP

B LLP is a business that provides professional services and it is the direct employer of a large number of employees.

B LLP owns all the shares of B Ltd.

B LLP operates through a number of branches and sometimes requires employees to relocate. Under the terms of the employee relocation policy as set out in B LLP’s staff handbook, if employees are moved to an area that is too far to commute from their existing home and where housing is more expensive, B Ltd advances a loan in respect of the difference in house prices for the relevant size and type of property. Any employee who receives such a loan repays it in instalments over a specified term.

B Ltd is a wholly owned subsidiary of B LLP and therefore the LLP exception applies.

The LLP exception could be prevented from applying if there was a connection between the additional housing cost loans and a tax avoidance arrangement. There is no such connection in the case of this LLP’s clearly laid down policy of the circumstances in which it provides additional housing cost loans to employees.

As the LLP exception applies, the step of advancing the loans is not taken by a relevant third person and therefore the housing cost loans do not come through the section 554A gateway. So the Part 7A rules do not apply.

Example: employee of subsidiary

B LLP provides consultancy services.

B Ltd, a wholly-owned subsidiary, provides the partnership with the services of its fee-earning staff.

B LLP makes loans to B Ltd’s staff.

The payments of sums of money by way of loan are relevant steps within Section 554C(1)(a): see EIM45065.

Since the fee-earners are employed by B Ltd and not B LLP, the LLP exception does not apply.

Accordingly, the arrangement comes through the Section 554A gateway.