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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: undertakings given by employers etc in relation to retirement benefits etc: earmarking etc by B

Section 554Z18 ITEPA 2003

Sections 554B and 554Z18
Earmarking: general
Earmarking: groups
Earmarking: LLPs
Otherwise held
The trustee exception
Group cases
‘Limited liability partnership’ and ‘wholly-owned subsidiary’

Certain steps taken in preparation for the performance of a ‘relevant undertaking’ rank as steps within Section 554Z18. The relevant undertaking is performed when some or all of the contributions that are the subject of the undertaking are paid.

Section 554Z18(1) is similar to Section 554B(1) see EIM45095.

On ‘relevant undertaking’, see EIM45145.

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Sections 554B and 554Z18

A step within Section 554Z18 is deemed to be a relevant step within Section 554B (if it would not otherwise be).

So, Section 554Z18 feeds into Section 554B.

This means that, for example, the valuation rules for a relevant step within Section 554B apply to a step within Section 554Z18. See EIM45700 onwards.

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Earmarking: general

B takes a step within Section 554Z18(1)(a) if:

  • a sum of money or asset is held by or on behalf of B, and
  • B earmarks it with a view to the relevant undertaking being performed at a later time (wholly or partly) out of:

    • that sum of money or asset, or
    • any sum of money or asset which may arise or derive (directly or indirectly) from it.

‘Earmarking’ in Section 554Z18(1)(a) is a statutory term. See EIM45110 (on ‘earmarking’ in Section 554B(1)(a)).

It does not matter how informal the earmarking is.

As a step within Section 554Z18 is deemed to be a relevant step within Section 554B (seeEIM45145), the rule in Section 554A(4) also applies here. This means the earmarking does not give rise to Part 7A income if it occurs on or after A’s death. See EIM45095.

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Earmarking: groups

If B is a company which is a member of a group of companies, B takes a step within Section 554Z18(1)(a) if two conditions are met.

  • A sum of money or asset is held by or on behalf of:

    • B, or
    • another member of B’s group.
  • B (or another member of B’s group) earmarks the sum of money or asset with a view to the relevant undertaking being performed at a later time (wholly or partly) out of:

    • that sum of money or asset, or
    • any sum of money or asset which may arise or derive (directly or indirectly) from it.

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Earmarking: LLPs

If B is a limited liability partnership (LLP), B takes a step within Section 554Z18(1)(a) if two conditions are met.

  • A sum of money or asset is held by or on behalf of:

    • B, or
    • a company which is a wholly-owned subsidiary of B.
  • B (or a wholly-owned subsidiary of B) earmarks the sum of money or asset with a view to the relevant undertaking being performed at a later time (wholly or partly) out of:

    • that sum of money or asset, or
    • any sum of money or asset which may arise or derive (directly or indirectly) from it.

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Otherwise held

B takes a step within Section 554Z18(1)(b) if:

  • a sum of money or asset otherwise starts being held by or on behalf of B, and
  • this is specifically with a view (so far as B is concerned) to the relevant undertaking being performed as set out above.

If B is a company which is a member of a group of companies, B takes a step within Section 554Z18(1)(b) if:

  • a sum of money or asset otherwise starts being held by or on behalf of B (or another member of B’s group), and
  • it starts being thus held specifically with a view (so far as that company is concerned) to the relevant undertaking being performed as set out above.

If B is an LLP, B takes a step within Section 554Z18(1)(b) if:

  • a sum of money or asset otherwise starts being held by or on behalf of B (or a wholly-owned subsidiary of B), and
  • it starts being thus held specifically with a view (so far as B or the wholly-owned subsidiary is concerned) to the relevant undertaking being performed as set out above.

It does not matter whether or not the sum of money or asset has previously been held on some different basis by or on behalf of B (or another member of B’s group, or a wholly-owned subsidiary of B).

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The trustee exception

B does not take a step within Section 554Z18 if B is acting as trustee.

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Group cases

To decide whether B is a member of a group of companies, you apply the rules for corporation tax on chargeable gains (see CG45100 onwards) with one modification.

The chargeable gains test is a 75% test. For the purposes of the group exception, you change ‘75%’ to ‘51%’ throughout.

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‘Limited liability partnership’ and ‘wholly-owned subsidiary’

‘Limited liability partnership’ has the meaning given by Section 1(2) Limited Liability Partnership Act 2000.

‘Wholly-owned subsidiary’ has the meaning given by Section 1159(2) Companies Act 2006.