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HMRC internal manual

Employment Income Manual

Employment income provided through third parties: exclusions: employee benefit packages: transaction is not loan

Section 554G ITEPA 2003

Conditions if the transaction is not a loan
‘Comparable with A’s status’
‘Employees of B’
Example: substantial proportion of B’s employees
Example: substantial proportion of those employees of B whose status as employees of B is comparable with A’s status as an employee of B

Section 554G (exclusions: employee benefit packages) lays down specific conditions to be met if the transaction is not a loan.

On Section 554G generally, see EIM45215.

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Conditions if the transaction is not a loan

Two conditions must be met if the relevant step is not the payment of a sum of money by way of loan to A. These two conditions are bulleted below.

  • The transaction with A is part of a package of benefits which is available to:

    • a substantial proportion of B’s employees, or
    • a substantial proportion of those employees of B whose status as employees of B is comparable with A’s status as an employee of B.

In practice, ‘a substantial proportion’ will normally mean at least 50%. See EIM26160 on ‘a substantial proportion’ in Section 176 ITEPA 2003.

  • Under the package of benefits, the person taking the step (P) offers similar transactions on sufficiently generous terms to other employees besides A. That is, the terms are such that substantially all of the employees of B to whom the package is available can take advantage of what is offered (if they want to). A transaction is ‘similar’ if it is of the same type as, or a similar type to, P’s transaction with A.

For the purposes of Section 554G, ‘A’ includes persons linked with A unless specifically noted. See EIM45860.

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‘Comparable with A’s status’

In deciding whether employees are comparable in status, you take into account matters such as:

  • levels of seniority,
  • types of duties, and
  • levels of remuneration.

‘Comparable with A’s status’ means comparable with the status of A alone not comparable with the status of any person linked with A.

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‘Employees of B’

If the relevant step is not the payment of a sum of money by way of loan to A, ‘employees of B’ means employees of B whose duties of employment are performed in the United Kingdom.

If a duty is performed outside the United Kingdom, and its performance is merely incidental to the performance of duties in the United Kingdom, then the duty is treated as performed in the United Kingdom.

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Example: substantial proportion of B’s employees

Employer B has a number of branches spread across the United Kingdom. It sometimes requires employees in professional and managerial jobs to relocate. Employees in administrative support roles are not required to relocate.

If employees have to move house because their existing home is too far from the new location, they can claim back various defined removal expenses (such as conveyancing and estate agents’ fees). B has taken on a commercial relocation assistance company to administer this. The terms of the employee relocation policy are set out in B’s staff handbook.

All employees in professional and managerial roles are entitled to this assistance if they have to move house because they have been relocated.

In practice, most such employees do not have a material interest in the company.

There are no indicators that the relocation expenses arrangements are connected with any tax avoidance arrangements.

On these facts:

  • the three conditions about the relevant step (see EIM45215),
  • the two conditions about the package of benefits (see EIM45215), and
  • the two conditions if the transaction is not a loan (see above)

are all met.

So, the relocation expenses are covered by Section 554G.

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Example: substantial proportion of those employees of B whose status as employees of B is comparable with A’s status as an employee of B

Employer B Ltd enters into arrangements with P Ltd a commercial car lease business for P to provide low-emission company cars to B’s employees. Employees who take up the offer of a company car do so under salary sacrifice arrangements. (On salary sacrifice arrangements, see EIM42750 onwards.)

The arrangements are clearly publicised to employees as part of B Ltd’s flexible remuneration package and are on offer to all 50 of the managers and senior administrators employed by B.

The arrangements are not on offer to the remaining 450 employees, who are in warehouse packing and retail roles.

8 of the managers and senior administrators have a material interest in B Ltd and they are included in the company car salary sacrifice arrangement in the same way as the other managers and senior administrators.

On these facts:

  • the three conditions about the relevant step (see EIM45215),
  • the two conditions about the package of benefits (see EIM45215), and
  • the two conditions if the transaction is not a loan (see above)

are all met.

The limited term provision of the company cars would probably not qualify as a relevant step within Section 554D (see EIM45080). But, even if it did, the arrangement would be covered by Section 554G.