What does section 554XA of ITEPA 2003 exclude from the Part 7A charge?

Section 554XA excludes payments made from a third-party disguised remuneration arrangement to HMRC in respect of an agreed tax liability. Both direct payments to HMRC and indirect payments through another person qualify, provided indirect payments reach HMRC within 60 days. The liability must be agreed as arising from the same arrangement.

What is the 60-day rule for indirect tax payments under section 554XA?

Where funds from a Part 7A arrangement are paid to a person other than HMRC — such as the individual or an adviser — the full amount must be forwarded to HMRC within 60 days. If the payment is not made to HMRC within this period, the exclusion is lost and a Part 7A income tax charge may arise on the original payment.

Do provisional tax payments qualify for the section 554XA exclusion?

No. Provisional payments of tax, including payments on account or estimated payments where the final liability is not yet determined, do not qualify. Only final payments made to discharge an agreed and undisputed tax liability are covered. This prevents speculative use of the exclusion or extraction of funds that may later be refunded.

How does HMRC agree that a tax liability is a 'relevant liability' under section 554XA?

HMRC must agree that the tax liability arises in connection with the same Part 7A arrangement from which funds are drawn. This agreement can be reached through a settlement agreement with HMRC or through a formal application made in the prescribed form under section 554XA. HMRC will notify the applicant of their decision.

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

Exclusions: payments in respect of a tax liability

Section 554XA provides an exclusion from the Part 7A disguised remuneration rules where funds held within a third-party arrangement are used to make a genuine tax payment to HMRC.

Payments made directly to HMRC for inheritance tax or corporation tax liabilities linked to the arrangement are excluded from the Part 7A charge, as are indirect payments where the funds reach HMRC within 60 days
The tax liability must be agreed with HMRC as arising from the same arrangement — either through a settlement agreement or a formal application process
Provisional tax payments do not qualify for this exclusion; only final payments towards undisputed liabilities are covered
Individuals or their representatives can apply to HMRC in a prescribed form to have a liability recognised as arising from the relevant arrangement

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