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

Application of Chapter 2: close companies

Section 554AA sets out the conditions under which the Part 7A disguised remuneration charge applies to arrangements involving close companies, their directors or employees, and third parties.

• A Part 7A income tax charge arises where a close company enters into a transaction connected to an arrangement designed to channel payments, benefits or loans to (or for the benefit of) an individual who is a director or employee with a material interest in that company
• The individual must have been both employed by (or a director of) the close company and have held a material interest in it at some point during the three years up to and including the date of the transaction
• A third party must take a "relevant step" (such as making a payment or providing a benefit) and there must be a traceable link between the assets involved in the company's transaction and those involved in the relevant step
• A main purpose of operating the arrangement, at any point during the relevant period, must be the avoidance of income tax, national insurance contributions, corporation tax or a section 455 CTA 2010 loan-to-participator charge