EIM47235 - Pt 7A ITEPA 2003: CCG: relevant step and relevant transaction

ITEPA 2003: sections 554AA(1)(g), (h)(i), 554B, C and D

In order to engage Pt 7A, a relevant third party needs to take a relevant step. The definitions for these are the same for the closed company gateway under section 554AA as for the previously existing Pt 7A gateway provisions under section 554A.

There has to be a connection between the sum of money or asset which is the subject of the relevant step and the sum of money or asset which was the subject of the relevant transaction. Section 554AA(1)(h) provides that it must be reasonable to suppose that the sum of money or asset which the third party uses to take a relevant step must represent the money or asset which was used to undertake the relevant transaction.

This can be a direct or indirect link between the transaction and the step. A company may settle a sum of money with a third party which is then loaned to the employee. The loan directly represents the sum used in the relevant transaction.

A company may settle an amount with a third party which is passed on to another company and then immediately loaned to the employee. It is likely that the payment of the amount to the second company is at the direction of the employee anyway so will be a relevant step taken before the amount is subsequently loaned to the employee. In both cases though it is the same amount of money used and it is possible that it either directly or indirectly represents the original funds settled which were the subject of the relevant arrangement.

It may be that the second company holds on to the money and uses it as part of its cash flow. It makes a loan of the same amount to the employee some months later. The original funds have been used but the second company has been enriched by the previous loan from a fund for which the employee is a beneficiary, enabling them to make a loan to the employee. That loan can be said to indirectly represent the sum used in the relevant arrangement.

The sums or assets used for the relevant step can also be derived or have arisen from the sums or asset which were used in the relevant transaction.

An employer may settle an amount with a third party which is then invested. Any investment return on the original amount will be an amount which has arisen or is derived from the sum or asset used in the relevant transaction. Any relevant steps taken using the investment return will be said to have arisen or been derived from the sums or assets which were the subject of the relevant transaction.