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HMRC internal manual

Employment Income Manual

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 - see EIM45205
  • section 554G excludes loans made as part of an employee benefits package - see EIM45215 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 - 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 April 2012 - 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 3 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 April 2012. See EIM45910.