Tax issues on the provision of loans to employees or directors

Published by a LexisNexis Tax expert
Practice notes

Tax issues on the provision of loans to employees or directors

Published by a LexisNexis Tax expert

Practice notes
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Companies sometimes provide directors or employees with low interest (or interest-free) loans as part of the reward package or on specific occasions to help the individual meet significant expenditure.

As with any other kind of employment reward, if the loan is provided by a third party, rather than the employer, the disguised remuneration provisions in Part 7A of Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) should be considered first, as those rules take priority over most of the other rules for taxing employment income (including the benefits code). For more details, see: Disguised remuneration and EBTs—overview and, in relation to the loan charge under the disguised remuneration rules, see Practice Note: Disguised remuneration—history of the loan charge.

If there is no third party (eg because the loan is advanced by the employer itself), or one of the exemptions from the disguised remuneration rules applies, then the rules in the benefits code on employment-related loans described below may apply to the relevant loan.

Broadly, where an employee or director (or a

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Jurisdiction(s):
United Kingdom
Key definition:
Loans definition
What does Loans mean?

occupational pension scheme resources may not at any time be invested in an employer-related loan. In accordance with section 40 of the Pensions Act 1995, employer-related loans are: loans to the employer or any such person; shares or other securities issued by the employer or by any person who is connected with, or an associate of, the employer; or employer-related investments eg a guarantee or security for obligations of the employer. This does not apply in respect of small self-administered schemes (SSASs) and self-invested pension plans (SIPPs).

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