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HMRC internal manual

Employment Income Manual

Employment income provided through third parties: Section554B: earmarking etc of sum of money or asset: relevant third person not aware of all the facts

Section 554B ITEPA 2003

To decide whether a relevant third person has taken a step within Section 554B, you need to take into account all the relevant circumstances. In particular, you need to consider the extent to which the person was aware of the breakdown of the value of the sums of money or assets amongst individual employees.

If the relevant third person genuinely does not know the division of value (whether held as sums of money or assets) amongst individual employees, then Section 554B(1)(a) is not satisfied. And nor is Section 554B(1(b).

So, the relevant third person has not taken a relevant step within Section 554B.

But, to prevent possible exploitation, Section 554B is widely drawn.

So, in each case, you need to find out all the facts.


  • the relevant third person claims not to know the identity of individual employees, and
  • the form of the arrangement supports this, but
  • the substance suggests otherwise,

then you should argue that the reality is that earmarking has taken place.

One example of this would be if the trustee of an EBT:

  • did not know the names of the employees concerned, but
  • had, at B’s wishes, earmarked amounts of money or shares for employees known to the trustee as‘X’ and ‘Y’ respectively.

On the other hand, for the purposes of determining whether earmarking has occurred, HMRC will not automatically impute knowledge from one group entity to another, where one is providing trustee services and the other administration services in respect of the same share plan.

Note that:

  • an arrangement can still come through the Section 554A gateway even if the relevant third person is not aware of the relevant arrangement, and
  • for the purposes of Section 554B(1)(a) and (b), it does not matter if the details of the later relevant step have not been worked out.

On the Section 554A gateway, see EIM45025.

On Section 554B, see EIM45095.