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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: amount of Part 7A income: consideration given for relevant step: A pays a sum of money

Section 554Z8 ITEPA 2003

Section 554Z8 adjusts the value of certain relevant steps if consideration is given for the value of the relevant step in specified circumstances.

In Section 554Z8, ‘A’ includes any person linked with A, see EIM45860.

A pays a sum of money as consideration for a relevant step: conditions

If A pays a sum of money as consideration for a relevant step, four conditions must be met if Section 554Z8 is to adjust the value of the relevant step. These conditions are bulleted below.

  • The relevant step is a step within one of the provisions listed below.

    • Section 554C(1)(b) (transfer of asset), see EIM45060.
    • Section 554C(1)(c) (employment-related securities etc), see EIM45060.
    • Section 554C(1)(e) (lease), see EIM45075.
    • Section 554D (asset made available), see EIM45080 onwards.
  • The relevant step does not also involve a sum of money.
  • The relevant step is for consideration given by A in the form of the payment of a sum of money to the relevant third person P (in Section 554C) from A.
  • A pays the money before, or at or about, the time the relevant step is taken.

Whether transactions take place ‘at or about’ the same time is a question of fact. In practice, ‘at or about’ normally means a few days either side of the date of the relevant step. The leeway allowed could be up to a week; depending on the particular circumstances, it could be longer.

A pays a sum of money as consideration for a relevant step: adjustment

If these conditions are met, you adjust Part 7A income in one of two ways.

If Section 554Z4 (residence issues) has not applied, you reduce the value of the relevant step by the amount of the consideration.

If the value of the relevant step was reduced under Section 554Z4 (see EIM45720), you reduce the value of the relevant step by

C x (Z3V — Z4V) / Z3V

where

  • ‘C’ is the amount of the consideration,
  • ‘Z3V’ is the value of the relevant step as determined under Section 554Z3, see EIM45710, and
  • ‘Z4V’ is the amount of the reduction under Section 554Z4, see EIM45720.

You make this reduction after any reductions under:

  • Section 554Z4,
  • Section 554Z5 (overlap with earlier relevant step), see EIM45725, or
  • Section 554Z6 (overlap with certain earnings), see EIM45735.

It cannot reduce the value of the relevant step below nil.