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HMRC internal manual

Employment Income Manual

Employment income provided through parties: exclusions: employment income exemptions

Section 554P ITEPA 2003

If the subject of a relevant step enjoys an employment income exemption, the relevant step does not give rise to Part 7A income.

If part of the subject of the relevant step falls outside the employment income exemption, you make a just and reasonable apportionment.

‘Employment income exemption’ here means:

  • an employment income exemption under Part 4 ITEPA 2003 - that is, an exemption from income tax which prevents liability to tax arising in respect of employment income of any kind at all (see EIM20030), or
  • the exemption under Section 271 ITEPA 2003 (removal benefits and expenses), which prevents liability to income tax arising in respect of earnings (see EIM03101 onwards).

In the latter case, the extent to which the relevant step is prevented from giving rise to Part7A income is capped at £8,000 in the same way as the exemption under Section 271.

For an example of relocation expenses that are not covered by Section 554P, see EIM45225.

On relocation loans from a relevant third person, see EIM45220.

If an arrangement would be tax-free if made directly between the employer and the employee, it does not necessarily follow that Section 554P will prevent Part 7A income arising if, instead, a third party is involved and the arrangement comes through the Section 554A gateway. The examples below illustrate this.

A incurs costs of work-related training. If B reimburses A’s costs, and the conditions of Section 250 ITEPA 2003 are met, there is no liability to income tax. See EIM01200 onwards.

Suppose, instead, that A’s costs are reimbursed in a way which comes through the Section554A gateway. Then Section 554P stops Part 7A income arising.

Example: death or retirement benefits

If B makes provision for A’s death or retirement benefits, and the conditions of Section 307 ITEPA 2003 are met, then no liability to income tax arises by virtue of Part 3 Chapter 10 ITEPA2003. See EIM21800 onwards.

Suppose, instead, that provision is made for A’s death or retirement benefits in a way which comes through the Section 554A gateway. Then Section 554P does not stop Part 7A income arising. Although Section 307 is in Part 4, it is an ‘earnings-only exemption’, not an ‘employment income exemption’.