Income Tax (Earnings and Pensions) Act 2003 section 289E

Anti-avoidance

Section 289E is a targeted anti-avoidance rule that prevents the tax exemptions for employee expenses and benefits from applying where arrangements have been put in place mainly to avoid tax or national insurance contributions.

• Where arrangements result in an employee receiving tax-exempt expense payments or benefits, but without those arrangements the employee would have received higher taxable earnings, the exemptions are denied if tax or NICs avoidance is a main purpose.
• Three conditions must all be met: the expense or benefit would otherwise be exempt (Condition A), the employee would have received greater taxable earnings without the arrangements (Condition B), and a main purpose of the arrangements is avoiding tax or NICs (Condition C).
• If all three conditions are satisfied, the exemptions under section 289A (paid or reimbursed expenses) and section 289D (other benefits) are withdrawn, meaning the amounts become taxable.
• "Arrangements" is broadly defined to include any scheme, transaction or series of transactions, agreement or understanding, whether or not legally enforceable.