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HMRC internal manual

Employment Income Manual

Employment income provided through third parties: relief where earmarking not followed by further relevant step: general

Section 554Z14 ITEPA 2003

Substantive conditions
Procedural conditions
Giving the relief
Tax liability reduced by the original relevant step

Section 554Z14 ITEPA 2003 permits an application for relief to be made where earmarking is not followed by a further relevant step.

This may be relevant if:

  • a sum of money or asset is earmarked for a particular employee, activating Sections 554A and 554B ITEPA 2003, but
  • the sum of money or asset is later earmarked for another purpose, with the result that this employee will never:

    • be entitled to it,
    • receive it, or
    • receive a sum of money arising or deriving from it.

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Substantive conditions

Five substantive conditions must be met. They are listed below.

  • A person (P) has taken a relevant step (‘the original relevant step’) within Section 554B. See EIM45095.
  • The original relevant step has given rise to Part 7A income.
  • An event (‘the relevant event’) occurs which is not a relevant step in relation to a ‘relevant sum or asset’.
  • By reason of the relevant event, no further relevant step is or will be taken (either by P or by any other person) in relation to any relevant sum or asset.
  • There is no connection (direct or indirect) between the relevant event and a tax avoidance arrangement. See EIM45855. Tax avoidance here includes, in particular, avoidance by way of obtaining Section 554Z14 relief.

‘Relevant sum or asset’ means:

  • the sum of money or asset which is the subject of the original relevant step, or
  • a sum of money or asset which (directly or indirectly) has arisen or derived (or may arise or derive) from this sum of money or asset.

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Procedural conditions

Section 554Z14 relief is not mandatory. Taxpayers have the right to apply for it.

An application must be made by A or, if A has died, A’s personal representatives.

It must be made to an officer of Revenue and Customs.

It must be made within four years of the time when the relevant event occurs. Note that this is a non-standard time limit which has no connection with, for example, the end of the tax year or Self Assessment.

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Giving the relief

If you are satisfied that the five substantive conditions are met, you must give such relief (if any) as you consider just and reasonable in respect of income tax paid on any ‘previously charged amount’.

There are two kinds of ‘previously charged amount’.

First, the amount which counted as A’s employment income because the original relevant step gave rise to Part 7A income is a ‘previously charged amount’.

Second, if:

  • B is treated as making a payment of PAYE income of A because of the original relevant step, and
  • Section 222 ITEPA 2003 applies because A has not made good to B within 90 days the amount for which B has had to account under PAYE - see EIM11950onwards,

then the amount treated by Section 222 as A’s earnings is a ‘previously charged amount’.

This relief has the result that, in relation to times after it has been given, the Tax Acts have effect as if the original relevant step had never given rise to Part 7A income.

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Tax liability reduced by the original relevant step

Relevant steps can have knock-on effects. For example, a relevant step can reduce a tax liability because of Section 554Z5 (see EIM45725) or Section 554Z13 (see EIM45870).


  • the original relevant step has given rise to Part 7A income, and
  • as a result, any person’s liability to income tax or corporation tax has been reduced (including to nil),

then you must take this into account in determining what would be a just and reasonable amount of relief to give.

You must:

  • have regard to the reduction in the tax liability, and
  • reduce the amount of relief which would otherwise have been given accordingly.