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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: relevant steps: Section 554C: payment of sum of money

Section 554C(1)(a) ITEPA 2003

A payment of a sum of money is a relevant step within Section 554C(1)(a).

Loans

In particular, a payment of a sum of money by way of a loan is a relevant step within Section554C(1)(a). This follows from Section 554Z(7).

Excluded loans

There are limited exclusions for the following loans.

  • Section 554F excludes loans made on ordinary commercial terms. SeeEIM45205.
  • Section 554G excludes loans made as part of an employee benefits package. SeeEIM45215 and EIM45220.
  • Section 554N excludes certain short term loans used to exercise employment-related securities options. See EIM45335.
  • Section 554O excludes loans made under an employee car ownership scheme. SeeEIM45230 and EIM45235.
  • Loans made between 9 December 2010 and 5 April 2011 inclusive are within the antiforestalling rules, but will be excluded to the extent that they are repaid before 6April2012. See EIM45910.

If the maker of the loan is not a relevant third person because either the group exception or the LLP exception applies, the arrangement will not come through the Section 554A gateway. See EIM45035.

Repayment of loans

If paying a sum of money by way of loan gives rise to Part 7A income, repaying the loan will usually not make any difference.

There are three exceptions to the rule that whether a loan is repaid will not affect the Part 7A position. These exceptions are listed below.

  • In certain circumstances, Section 554N (exclusions: employment-related securities etc) imposes a fall-back charge if a loan is made to enable the exercise of an employment-related securities option and the loan is repaid late. Therefore, this fall-back charge will apply if the loan is not repaid in full on time. See EIM45335.
  • Section 554O excludes loans made under an employee car ownership scheme. There is a fall-back charge if such a loan is not fully repaid. See EIM45230 and EIM45235.
  • Loans made between 9 December 2010 and 5 April 2011 inclusive are within the antiforestalling rules, but will be excluded to the extent that they are repaid before 6 April2012. See EIM45910.