Income Tax (Earnings and Pensions) Act 2003 section 554A

Application of Chapter 2: main case

Section 554A sets out the main conditions that must be met for the disguised remuneration rules in Chapter 2 of Part 7A to apply, triggering an income tax charge when rewards, recognition or loans connected with employment are provided through third-party arrangements.

• The rules apply where an employee (A) is covered by an arrangement that is, in essence, a means of providing rewards, recognition or loans connected with their employment with an employer (B), and a relevant step is taken by a third party in connection with that arrangement.
• A "relevant step" includes earmarking money or assets, making payments or transfers, making assets available, and certain loan-related steps — and remains a relevant step even if it constitutes or involves a breach of trust.
• The rules do not apply to certain relevant steps taken on or after the employee's death, and various specific exclusions are set out in other sections of the legislation.
• Where the employer (B) is a company in a group or a limited liability partnership, other group companies or wholly-owned subsidiaries are generally treated as part of B rather than as third parties — but this extension is switched off where the relevant step is connected to a tax avoidance arrangement.