NIM52500 - NICs avoidance: employment income provided through third parties: preventing double taxation

There is the possibility of double taxation if what is the same amount of earnings is

• first taxed as earnings from the employment in relation to a step taken before 6 April 2011, and
• then taxed again under Part 7A of ITEPA 2003.

This could arise if a third party arrangement results in employment income being taxed as earnings from the employment and also at some later or earlier date under Part 7A of ITEPA.

There are special rules to stop this double taxation arising by reducing the value of the relevant step to take account of the amount taxed. This reduction is sometimes called the “settlement credit”. These income tax rules are explained in EIM45935 onwards.

If the settlement credit reduces the amount which counts as employment income for income tax purposes under Part 7A ITEPA 2003, then it reduces the amount treated as earnings for Class 1 NICs purposes.

The settlement credit reduces the amount subject to income tax and Class 1 NICs under Part 7A ITEPA and regulation 22B of the SS(C)R 2001. It does not give credit for tax/NICs paid against tax/NICs due.

For guidance about when Class 1 NICS liability may arise on an amount which counts as employment income under Section 7A of ITEPA 2003, see NIM52150