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Employment Related Loans

Employment Related Loans

When Employment related loans are waived this creates an income tax charge on the employee. To stop this charge being avoided I thought there was a provision saying that long term loans would trigger the tax liability, but the tax would be repayed (refunded) as and when the loan is repayed. I cannot find any legislation or HMRC guidance on this. Does anybody know where I can find it?


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03rd Sep 2010 18:16

Employment Loans

 A loan to an employee is a benefit under s175 ITEPA.  There is a tax charge on the value of the benefit, which is the official rate of interest.  The tax is charged annually every year the loan is in existence.  It is not repayable.

If the loan is written off or waived, s188 charges the amount written off or waived as employment income.

If you are thinking about s419 ICTA in respect of loans made to participators, this is a temporary tax that charges the amount of the loan at 25% if it remains unpaid at the end of the year the loan is advanced.  Relief is given as when the loan is repaid by way of repaying the s419 tax.  If the loan is written off then the whole amount of the s419 tax is repaid  However, a subsequent charge under s421 comes into play when a loan is written off. This effectively treats the write off as a dividend and comes with a tax credit at the dividend rate.

S175 still applies if the participator is an employee.

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By Scion
to bernard michael
15th Mar 2013 12:15

General earnings s62 ITEPA


If the loan can be ascribed to the fact that the borrower is an employee then any waiver will be taxed as general earnings under s62 ITEPA which takes precedence over s188 ITEPA ( BIK ) and therefore PAYE is applicable to general earnings.

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