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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income through third parties: undertakings given by employers etc in relation to retirement benefits etc: provision of security by employers etc

Sections 554Z19 and 554Z20(5) and (6) ITEPA 2003

Step within Section 554Z19
Anniversary steps
The trustee exception
Group cases
‘Limited liability partnership’ and ‘wholly-owned subsidiary’
Subject of the step

In summary, B takes a step within Section 554Z19 if B provides security for the performance of the relevant undertaking. The relevant undertaking is performed when some or all of the contributions that are the subject of the undertaking are paid.

On ‘relevant undertaking’, see EIM45145.

B may also be deemed to take additional steps within Section 554Z19 if B continues to provide security.

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Step within Section 554Z19

B takes a step within Section 554Z19 if B provides security for the performance of the relevant undertaking.

If B is a company which is a member of a group of companies, B takes a step within Section554Z19 if B (or another member of B’s group) provides security for the performance of the relevant undertaking.

If B is a limited liability partnership, B takes a step within Section 554Z19 if B (or a company which is a wholly-owned subsidiary of B) provides security for the performance of the relevant undertaking.

It does not matter how the security is provided.

Nor does it matter how informally the security is provided.

As a step within Section 554Z19 is deemed to be a relevant step within Section 554B (see EIM45145), the rule in Section 554A(4) also applies here. This means that the provision of security does not give rise to Part 7A income if it is occurs on or after A’s death. See EIM45095.

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Anniversary steps

Also, if B:

  • takes a step within Section 554Z19, and
  • continues to provide the security for a year or more,

then B will be deemed to take at least one additional step within Section 554Z19.

This deemed step (‘the anniversary step’) has the following features.

  • It is within Section 554Z19.
  • It is taken as at the end of the day of an anniversary of the taking of the actual step (‘the anniversary day’). In other words, if B continues to provide the security for a further year, there will be a further anniversary step. And so on.
  • It gives rise to Part 7A income.

The anniversary step gives rise to Part 7A income subject to the exclusion in Section 554A(4) (see EIM45095) and any relevant reliefs.

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The trustee exception

B does not take a step within Section 554Z19 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.

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Subject of the step

The subject of the step is any sum of money or asset which is the subject of the security when the step is taken.

You will need to make an apportionment if, when the step is taken, the security covers not only the relevant undertaking but also other undertakings.

In such a case, you apportion any sum of money or asset which is the subject of the security on a just and reasonable basis between the relevant undertaking and the other undertakings.