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HMRC internal manual

Employment Income Manual

Introduction to schedule 11 F(No 2)A 2017

The introduction of Pt 7A ITEPA 2003 in April 2003 brought in a prospective charge to tax on employment income which was routed through third parties. It also charged disguised remuneration loans to tax where these loans were provided through third parties. These changes only applied to transactions entered into from 9 December 2010.

Schedule 11 Finance (No 2) Act 2017 introduces provisions to charge to tax any remuneration which had been provided by a third party in the form of loans which had been made from 6 April 1999. Where a balance of such a loan was still outstanding at the end of 5 April 2019, the 2017 provisions count the amount of the outstanding balance as employment income of the recipient of the loan. The person who made the loan is treated as taking a relevant step for the sum of the outstanding balance at the end of 5 April 2019.

The provisions of section 554Z2 apply to the value of the deemed relevant step. The amount of the outstanding loan balance on that date becomes an amount which counts as employment income of the employee. The employee’s employer in relation to the original loan (“B” in terms of section 554A) will be liable to operate PAYE on the value of the relevant step in accordance with section 687A ITEPA 2003. If the employer no longer exists on 5 April 2019, the employee will need to include the value of the relevant step in his or her Self Assessment.

Where such a charge to tax exists, it will be referred to as the loan charge. All references in this guidance to the loan charge are to the provisions of Sch 11 Finance (No 2) Act 2017.

Where a taxpayer has what is termed an approved fixed term loan, the loan charge will arise on the approved repayment date rather than on 5 April 2019 if certain conditions are met. Full details on this are at EIM47105.

Where a taxpayer has paid an amount under an accelerated payment notice, it is possible to alter the date on which the loan charge arises if certain conditions are met. Full details are at EIM47130.

Some taxpayers used avoidance schemes to transfer liability for loans they had taken out to another party in an attempt to circumvent the provisions of Pt 7A. Such loan transfers are brought within the scope of the 2017 provisions.

There are some exclusions to the provisions which are detailed later in the Manual. These largely mirror the existing exclusions in Pt 7A.

References to Paras in the loan charge sections of the Employment Income Manual are references to the paragraphs in schedule 11 Finance (No 2) Act 2017.