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HMRC internal manual

National Insurance Manual

NICs avoidance: employment income provided through third parties: introduction

Introduction - Part 7A of the Income Tax (Earnings and Pensions) Act 2003

Tax legislation on employment income provided through third parties tackles arrangements which

  • involve third parties (including trusts or other vehicles used to reward employees), and
  • seek to avoid or defer the payment of income tax.

The legislation also deals with pension schemes which are not registered.

Broadly speaking, if third party arrangements are used to provide for what is in substance a reward or recognition or a loan, in connection with the employee’s current, former, or future employment, then an income tax charge arises on the amount which counts as employment income.

The rules contain detailed exclusions. These prevent the legislation from catching certain arrangements. Generally, the exclusions are targeted at those arrangements which do not involve tax avoidance.

The amount that counts as employment income is specifically brought within the scope of PAYE.

Part 7A of ITEPA 2003 was introduced with effect from 6 April 2011. There are transitional rules, including anti-forestalling rules which cover certain transactions carried out in the period from 9 December 2010 to 5 April 2011 (inclusive).

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National Insurance contributions

Regulations treat the amount which counts as employment income under Part 7A as remuneration derived from an employment, and so the amount represents a payment of earnings for Class 1 NICs liability purposes. See NIM52050 and NIM02015.