Writing off loans to directors or employees

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Writing off loans to directors or employees
  • How could income tax arise when a loan is written off?
  • Earnings Charge
  • Employment-Related Loan Charge
  • Exceptions to the Employment-Related Loan Charge
  • Residual Benefits Charge
  • Close companies

Writing off loans to directors or employees

Companies sometimes provide loans to directors or employees as part of the reward package or on specific occasions to help the individual meet significant expenditure. This Practice Note considers the income tax and National Insurance contributions (NICs) charges that arise if such a loan is subsequently written off or released by the lender.

As with any other kind of employment reward, if the loan is provided by a third party, rather than the employer, it is worth considering whether the disguised remuneration provisions in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) apply, as those rules take priority over most of the other rules for taxing employment income (including the benefits code). For more details, see Practice Note: Disguised remuneration—structure of the regime and its implications in practice and, in relation to the loan charge under the disguised remuneration rules, see Practice Note: Disguised remuneration—the loan charge. If there is no third party, or one of the exemptions from the disguised remuneration rules applies, then the rules described below apply.

This Practice Note covers the specific rules in the benefits code in ITEPA 2003, Part 3 that apply to 'employment-related loans'. For details of what constitutes an employment-related loan, see Practice Note: Employment-related loans—defined.

In addition to the tax charges when the loan is written

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