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HMRC internal manual

Employment Income Manual

Employment income provided through third parties: undertakings given by employers etc in relation to retirement benefits etc: earmarking or security not followed by contribution or benefit

Sections 554Z14 and 554Z21 ITEPA 2003

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

Sections 554Z14 and 554Z21 permit an application for relief to be made where earmarking or provision of security is not followed by payment of a contribution or provision of a benefit.

This may be relevant if:

  • an employer gives an undertaking to pay relevant contributions in respect of a particular employee, and
  • the employer earmarks sums or assets with a view to paying the contributions or provides security for payment of those contributions, activating Sections 554A and 554B by virtue of Section 554Z18 or Section 554Z19, but
  • there is an event as a result of which the employee is able to demonstrate that some or all of the relevant contributions that were the subject of the relevant undertaking will never be paid.

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Substantive conditions

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

  • B has taken a relevant step (‘the original relevant step’) within Section 554Z18 or Section 554Z19. See EIM45150 and EIM45155 respectively.
  • The original relevant step has given rise to Part 7A income.
  • An event (‘the relevant event’) occurs which is neither the payment of ‘the relevant contribution’ (or any part of it) nor the provision of any ‘relevant benefit’.
  • By reason of the relevant event, the relevant contribution (or any part of it) will not be paid or a relevant benefit will not be provided.
  • 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.

‘The relevant contribution’ means the contribution to be paid under the ‘relevant undertaking’. See EIM45145.

A ‘relevant benefit’ is a benefit to be provided out of that contribution as mentioned in Section 554Z16. See EIM45145.

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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’.

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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.