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(2) which are taxable cheap loans are outstanding in the year, the aggregate of the | |
amount outstanding on them) does not exceed £5,000. | |
(3) The £5,000 threshold for non-qualifying loans is not exceeded if at all times in | |
the year the amount outstanding on the loan (or if two or more employment- | |
related loans which are non-qualifying loans are outstanding in the year, the | 5 |
aggregate of the amounts outstanding on them) does not exceed £5,000. | |
(4) In this section a “non-qualifying loan” means a taxable cheap loan which is not | |
a qualifying loan. | |
(5) For the purposes of this section a loan is a “qualifying loan” in relation to a | |
particular tax year if, assuming interest is paid on the loan for that year | 10 |
(whether or not it is in fact paid), the whole or part of that interest— | |
(a) is eligible for relief under section 353 of ICTA (general provision for | |
relief for payments of interest, excluding MIRAS), | |
(b) would be eligible for relief under that section but for the fact that it is a | |
payment of relevant loan interest to which section 369 of ICTA applies | 15 |
(mortgage interest payable under deduction of tax), | |
(c) is deductible in computing the amount of the profits to be charged | |
under Case I or II of Schedule D in respect of a trade, profession or | |
vocation carried on by the person to whom the loan is made, or | |
(d) is deductible in computing the amount of the profits to be charged | 20 |
under Schedule A in respect of a Schedule A business carried on by that | |
person. | |
Calculation of amount of interest at official rate | |
181 The official rate of interest | |
(1) “The official rate of interest” for the purposes of this Chapter means the rate | 25 |
applicable under section 178 of FA 1989 (general power of Treasury to specify | |
rates of interest). | |
(2) Regulations under that section may make different provision in relation to a | |
loan if— | |
(a) it was made in the currency of a country or territory outside the United | 30 |
Kingdom, and | |
(b) the employee normally lives in that country or territory, and has | |
actually lived there at some time in the period of 6 years ending with | |
the tax year in question. | |
(3) Subsection (2) does not affect the general power under section 178(3) of FA | 35 |
1989 to make different provision for different purposes. | |
182 Normal method of calculation: averaging | |
The normal method of calculating for the purposes of this Chapter the amount | |
of interest that would be payable on a loan for a tax year at the official rate is as | |
follows. | 40 |
Step 1 | |
Calculate the average amount of the loan outstanding during the tax year— | |
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1. Find the maximum amount of the loan outstanding on the 5th April | |
preceding the tax year or, if the loan was made in the tax year, on the date it | |
was made. | |
2. Find the maximum amount outstanding on 5th April of the tax year or, if the | |
loan was discharged in the tax year, on the date of discharge. | 5 |
3. Add these amounts together and divide the result by 2. | |
Step 2 | |
If the official rate of interest changed during the period in the tax year when the | |
loan was outstanding, calculate the average official rate of interest for that | |
period as follows— | 10 |
1. Multiply each official rate of interest in force during the period by the | |
number of days when it is in force. | |
2. Add these products together. | |
3. Divide the result by the number of days in the period. | |
Step 3 | 15 |
Calculate the amount of interest that would be payable on the loan for the tax | |
year at the official rate as follows—![equation: cross[char[A],cross[char[I],over[char[M],num[12.00000000,"12"]]]]](missing.gif) | |
where— | |
A is the average amount of the loan outstanding during the tax year | |
obtained from step 1, | 20 |
I is the official rate of interest in force during the period in the tax year | |
when the loan was outstanding or, if the official rate changed, the | |
average official rate of interest obtained from step 2, and | |
M is the number of whole months during which the loan was outstanding | |
in the year. | 25 |
For this purpose a month begins on the sixth day of the calendar month. | |
183 Alternative method of calculation | |
(1) The alternative method of calculating for the purposes of this Chapter the | |
amount of interest that would be payable on a loan for a tax year at the official | |
rate applies for a tax year— | 30 |
(a) if the Inland Revenue so require, by notice to the employee, or | |
(b) if the employee so elects, by notice to the Inland Revenue. | |
(2) Notice may be given on or before the first anniversary of the normal self- | |
assessment filing date for the tax year in relation to which the question arises | |
whether the loan is a taxable cheap loan. | 35 |
(3) The alternative method is as follows— | |
Step 1 | |
Find for each day in the tax year in question the maximum amount of the loan | |
outstanding on that day and multiply it by the official rate of interest in force | |
on that day. | 40 |
Step 2 | |
Add together each of the amounts obtained under step 1. | |
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Step 3 | |
Divide the result by the number of days in the tax year. | |
(4) Where in any tax year the cash equivalent of the benefit of the same taxable | |
cheap loan is to be treated as earnings of two or more employees then, for the | |
purposes of determining the cash equivalent of the benefit of the loan, the | 5 |
alternative method applies if— | |
(a) the notice under subsection (1)(a) is given to all those employees, or | |
(b) the notice under subsection (1)(b) is given by all those employees. | |
Supplementary provisions relating to taxable cheap loans | |
184 Interest treated as paid | 10 |
(1) This section applies where the cash equivalent of the benefit of a taxable cheap | |
loan is treated as earnings from an employee’s employment for a tax year | |
under section 175(1). | |
(2) The employee is to be treated for the purposes of the Tax Acts as having paid | |
interest on the loan in that year equal to the cash equivalent. | 15 |
(3) But the employee is not to be treated as having paid that interest for the | |
purposes of this Chapter or of any of the other Chapters of this Part listed in | |
section 216(4) (provisions of the benefits code which do not apply to lower- | |
paid employment). | |
(4) The interest is to be treated— | 20 |
(a) as accruing during the period in the tax year during which the | |
employee holds the employment and the loan is outstanding, and | |
(b) as paid by the employee at the end of the period. | |
(5) The interest is not to be treated— | |
(a) as income of the person making the loan, or | 25 |
(b) as relevant loan interest to which section 369 of ICTA applies (mortgage | |
interest payable under deduction of tax). | |
185 Apportionment of cash equivalent in case of joint loan etc. | |
Where in any tax year the cash equivalent of the benefit of the same taxable | |
cheap loan is to be treated as earnings of two or more employees— | 30 |
(a) the cash equivalent of the benefit of the loan (determined in accordance | |
with the provisions of this Chapter) is to be apportioned between them | |
in a just and reasonable manner, and | |
(b) the portion allocated to each employee is to be treated as the cash | |
equivalent of the benefit of the loan so far as that employee is | 35 |
concerned. | |
186 Replacement loans | |
(1) This section applies where an employment-related loan (“the original loan”) is | |
replaced, directly or indirectly, by— | |
(a) a further employment-related loan, or | 40 |
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(b) a loan which is not an employment-related loan but which in turn is, in | |
the same tax year or within 40 days after the end of the tax year, | |
replaced, directly or indirectly, by a further employment-related loan. | |
(2) In such a case, for the purposes of calculating the cash equivalent of the benefit | |
of the original loan under section 175(3), section 182 (normal method of | 5 |
calculating interest at the official rate) applies as if the replacement loan, or | |
each of the replacement loans, were the same loan as the original loan. | |
(3) Where section 182 is applied as modified by subsection (2) then for the | |
purposes of section 175(3)(b) the amount of interest actually paid on the loan | |
for the tax year in question is the total of— | 10 |
(a) the amount of interest actually paid on the original loan for that year, | |
and | |
(b) the amount of interest actually paid on the replacement loan or on each | |
of the replacement loans for that year. | |
(4) In this section a “further employment-related loan” means a loan which is an | 15 |
employment-related loan made in relation to— | |
(a) the same or other employment with the person who is the employer in | |
relation to the original loan, or | |
(b) employment with a person who is connected with that employer. | |
187 Aggregation of loans by close company to director | 20 |
(1) This section applies where, in relation to any tax year, there are employment- | |
related loans between the same lender and borrower which are aggregable | |
with each other. | |
(2) The lender may elect for aggregation to apply for that tax year in the case of the | |
borrower. | 25 |
(3) The effect of the election is that all the aggregable loans are to be treated as a | |
single loan for the purposes of— | |
section 175 (benefit of taxable cheap loan treated as earnings), | |
the provisions of this Chapter relating to the calculation of the cash | |
equivalent of the benefit of a taxable cheap loan, and | 30 |
section 184 (interest treated as paid). | |
(4) For this purpose loans are aggregable for any tax year if they are made in the | |
same currency and all the following conditions are met in relation to each of | |
them— | |
(a) there is a time in the tax year when— | 35 |
(i) the loan is outstanding, | |
(ii) the lender is a close company, and | |
(iii) the borrower is a director of that company; | |
(b) at all times in the tax year the rate of interest on the loan is less than the | |
official rate applying at that time; | 40 |
(c) the loan is not a qualifying loan within the meaning of section 180 (see | |
section 180(5)). | |
(5) An election under this section must be made by the lender in a notice given— | |
(a) to the Inland Revenue, and | |
(b) before 7th July after the end of the tax year to which the election relates. | 45 |
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