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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Employment income provided through third parties: exclusions: employee car ownership schemes: relief

Section 554O ITEPA 2003

If an employee car ownership scheme (ECOS) meets the conditions in Section 554O (see EIM45230), it enjoys conditional relief from Part 7A ITEPA 2003.

The relief

Under Section 554O, a relevant step does not give rise to Part 7A income if it is taken for the sole purpose of:

  • purchasing a car or selling it back as provided in the ECOS, or
  • making a car loan as provided in the ECOS.

But this relief does not apply if there is a connection between the relevant step and a tax avoidance arrangement (see EIM45855).

The fall-back charge


  • Section 554O gives relief when a car loan is made, but
  • by the end of the repayment date provided in the ECOS, the car loan has not been fully repaid,

the outstanding amount gives rise to Part 7A income.

That is, Section 554O deems:

  • a relevant step to be taken at the end of that date giving rise to Part 7A income, and
  • A to be a relevant person within Section 554C(1) in respect of this step.

The subject of this notional relevant step is a sum of money equal to the outstanding amount of the car loan at the end of that date.

On the repayment date, see EIM45230.