The Employment Income Provided Through Third Parties (Excluded Relevant Steps) Regulations 2011

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations disapply Chapter 2 of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (“the 2003 Act”) in relation to—

• relevant steps the subject of which is a sum of money or asset relating to UK tax-relieved funds or relevant transfer funds under a relevant non-UK scheme (as defined in Schedule 34 to the Finance Act 2004); and

• payments made by a registered pension scheme that have been subject to an unauthorised payments charge under Part 4 of that Act.

The Regulations have retrospective effect from 9th December 2010 pursuant to the power contained in section 554Y(4) of the 2003 Act.

Part 7A of the 2003 Act was inserted by the Finance Act 2011. This Part contains rules that will apply in certain circumstances where employees and their employers enter into arrangements which result in a payment of money or the provision of an asset by a third party rather than the employer. The new rules create a tax charge which will apply when a relevant step arises, for example, on the making of certain loans of money or assets by third parties to the employee, the earmarking of money or assets for the employee by a third party and on the outright payments of money or transfers of assets to the employee by a third party. The tax charge occurs where these relevant steps are not otherwise charged to tax as earnings from the employment.

Regulation 3 excludes tax charges from arising by virtue of Chapter 2 of Part 7A of the 2003 Act by reason of a relevant step where the subject of the relevant step is a sum of money or asset which represents, or which has arisen or derived from a sum of money that represents, a UK tax relieved fund or a relevant transfer fund under a relevant non-UK scheme. It also provides for there to be two separate steps when the sum of money or assets only partly so represents or so arises from such a fund and for the apportionment of the sum of money or asset between the two steps on a just and reasonable basis.

Regulation 4 excludes tax charges from arising by virtue of Chapter 2 of Part 7A of the 2003 Act by reason of a relevant step where the subject of the relevant step is a sum of money or asset which has arisen or derived from a payment made by a registered pension scheme that was subject to the unauthorised payments charge. It also provides for there to be two separate steps when the sum of money or assets only partly so arises from such a scheme and for the apportionment of the sum of money or asset between the two steps on a just and reasonable basis.

Regulation 5 modifies section 554S of the 2003 Act in consequence of these Regulations.

A Tax Information and Impact Note covering this instrument was published on 23rd March 2011 alongside the Budget and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this instrument.