Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
, see all updates

Employment income provided through third parties: the Section554A gateway: examples: dividends

Sections 554A to 554D ITEPA 2003

Here are some examples involving dividends.

Example: dividend

IJK plc makes an offer of shares to the public, some of its employees subscribe for shares in their employer, and these employees receive dividends on their shares.

The payment of a cash dividend is potentially a relevant step within Section 554C(1)(a). See EIM45060.

But it does not follow that paying a dividend to an employee will automatically give rise to Part7A income.

IJK plc, the employer, is not a relevant third person. See EIM45035. So condition 4 in EIM45025 (Section 554A(1)(d)) is not met.

Also, a normal dividend payment that simply happens to follow a shares transaction will not meet conditions 2, 3 or 5 in EIM45025 (Section 554A(1)(c) and (e)).

Therefore, the scenario under review will not come through the Section 554A gateway.

Example: dividend paid on shares awarded by EBT

LMN plc makes an offer of shares to the public. It has set up an EBT to benefit its employees, and the trustees subscribe for LMN shares.

The trustees award LMN shares to an employee under an incentive scheme.

LMN plc pays a dividend to all its shareholders, including this employee.

The payment of a cash dividend is potentially a relevant step within Section 554C(1)(a). See EIM45060.

But it does not follow that paying a dividend to an employee will automatically give rise to Part7A income, even where the shares have been awarded by the trustees of the EBT.

LMN plc, the employer, is not a relevant third person. See EIM45035. So condition4 in EIM45025 (Section 554A(1)(d)) is not met.

Therefore, the scenario under review will not come through the Section 554A gateway.

Example: dividend paid on shares awarded by EBT: group holding company

OPQ plc makes an offer of shares to the public. It has set up an EBT to benefit employees of the OPQ group, and the trustees subscribe for OPQ shares.

R Ltd is a wholly-owned subsidiary of OPQ plc. Under an incentive scheme, the trustees award OPQ shares to S, an employee of R Ltd.

OPQ plc pays a dividend to all its shareholders, including S.

The payment of a cash dividend is potentially a relevant step within Section 554C(1)(a). See EIM45060.

But it does not follow that paying a dividend to an employee will automatically give rise to Part7A income, even where the shares have been awarded by the trustees of the EBT.

OPQ plc is not S’s employer. But R Ltd is a wholly-owned subsidiary of OPQ plc. And, since the dividend is a normal dividend paid following an offer of shares to the public, there is no connection with a tax avoidance arrangement. So the group exception applies. See EIM45035.

So the dividend is treated as paid by S’s employer, and condition4 in EIM45025 (Section554A(1)(d)) is not met.

Therefore, the scenario under review will not come through the Section 554A gateway.