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HMRC internal manual

Employment Income Manual

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Employment income provided through third parties: anti-forestalling rules: early step within Section 554C(1)(d)

Schedule 2 paragraph 54 FA 2011

Suppose that a relevant third person (P) takes a relevant step within Section 554C(1)(d) (see EIM45070) between 9 December 2010 and 5 April 2011 (inclusive). This step is labelled ‘the early step’.

Anti-forestalling rules may apply. Note that, for the purposes of these rules, the application of Section 554C(1)(d) is narrowed down. Some transactions that would come within Section 554C(1)(d) will fall outside the narrower set of circumstances to which these rules apply.

Conditions

In order for the anti-forestalling rules to apply, six conditions must be met. These conditions are bulleted below.

  • P takes the early step between 9 December 2010 and 5 April 2011 (inclusive).
  • The subject of the relevant step is not a sum of money.
  • The subject of the relevant step is a ‘readily convertible asset’ (see EIM11900) which P makes available to secure the payment of a sum of money.
  • The payment of the sum of money is secured by P making the readily convertible asset available:

    • for use as security for a loan made (or to be made) to a ‘relevant person’ (seeEIM45090), or
    • for use in some other way as security for the meeting of any liability (or the performance of any undertaking) which a relevant person has or will have.
  • The early step would have given rise to Part 7A income if the Part 7A rules had come into effect on 9 December 2010 that is, the arrangement would have come through the Section554A gateway and none of the exclusions would have applied.
  • The early step is not chargeable to income tax, in whole or in part, by virtue of Schedule 34 FA 2004 (non-UK pension schemes).

Early step outside the anti-forestalling rules

The anti-forestalling rules discussed on this page do not apply if:

  • P makes a sum of money or asset available under an arrangement which permits its use as security for a loan made (or to be made) to a relevant person, or
  • P makes a sum of money or asset available under an arrangement which permits its use in some other way as security for the meeting of any liability (or the performance of any undertaking) which a relevant person has or will have.

Rules

These are the anti-forestalling rules relating to the taxation of employment income.

  • The early step gives rise to Part 7A income.
  • The value of the early step counts as A’s employment income for 2012-13. Apart from that, the Part 7A rules apply by reference to the date when the early step was actually taken.
  • The early step can be taken back. The Part 7A rules do not apply if:

    • the readily convertible asset has been returned to P before 6 April 2012, and
    • as at that date the asset is not being used to secure the sum of money (or any part of it).
  • Section 554Z5 (amount of Part 7A income: overlap with earlier step) does not apply to the early step. You ignore the early step when applying Section 554Z5 (seeEIM45725).
  • Section 554Z8 (amount of Part 7A income: cases where consideration given for relevant step) can apply to the early step. But, if it does, you do not adjust its value by C x (Z3V Z4V) / Z3V. See EIM45760.
  • Section 554Z12 (amount of Part 7A income: relevant step taken after A’s death etc) does not apply to the early step. See EIM45865.
  • For PAYE purposes, you treat P as having taken the early step on 6 April 2012. SeeEIM11813.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)