EIM47225 | Pt 7A ITEPA 2003: CCG: relevant transaction - employment and material interest conditions

ITEPA 2003: sections 68, 554AA(1)(e) and (f), 554AE

CTA 2010: sections 454 and 455

In order to properly target transactions relating to appropriate employees, the CCG includes requirements relating to employment and material interest for the employee covered by the arrangement.

The first requirement is that the individual must be a director or former director of the close company or an employee or former employee of that company.

The employment requirement will be met if A is an employee or director of B either on the date of the relevant transaction or has been an employee or director of B at any point in the three year period ending with the date of the relevant transaction.

The three year time limit provides a bright line test to ensure that historical employment is not considered but avoids making the provision easy to circumvent.

The second requirement is that the employee or director has or has had a material interest in the company. This relies on the definition of material interest in section 68 ITEPA 2003 – see EIM20212. Section 554AE(2)(b) also requires that the individual who would be described as a participator in section 68 has to be a participator for the purposes of section 455 CTA 2010.

The material interest provision also applies to employees and directors of non-UK resident companies. Where an employee or director of a non-UK resident company satisfies the provisions relating to material interest detailed above, the qualifying connection requirement is deemed to be satisfied as if the company were UK-based.

The material interest condition will be met if A has a material interest in B either on the date of the relevant transaction or at any time in the three year period ending with the date of the relevant transaction.

The definition of a director is contained in section 554AD. It includes any person on whose directions or instructions the directors of the employing company are accustomed to act. This does not however apply merely because the directors act on that person’s advice given in a professional capacity.