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

Exclusions: earmarking of deferred remuneration

Section 554H provides an exclusion from the disguised remuneration rules (Chapter 2) for genuine deferred remuneration arrangements where an employer awards pay that is contingent on conditions being met by a future vesting date.

• A deferred remuneration award is excluded from the disguised remuneration charge where it has a genuine risk of being revoked, the vesting date is no more than five years after the award date, the remuneration would be PAYE employment income if paid directly, and there is no connection to a tax avoidance arrangement.
• If the earmarked money or asset ceases to represent the deferred remuneration but remains held by or on behalf of the third party, a deemed relevant step arises at that point, bringing the amount (plus a just and reasonable share of any related income) back within the disguised remuneration charge.
• If, by the end of the vesting date, the deferred remuneration has neither been paid as PAYE employment income nor revoked under the award terms, a deemed relevant step arises at the end of the vesting date based on the notional PAYE amount that would have applied had the remuneration been paid at that point.
• Any income that arises from the earmarked sum or asset held by the third party, which would otherwise be excluded under section 554Q, is brought back into charge as part of the deemed relevant step where applicable.