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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: loans released or written off

Section 62 ITEPA 2003

The release or writing off of a loan made to an employee by an employer is taxable as “earnings” within Section 62 ITEPA 2003 if the writing off can only be ascribed to the fact that the borrower is an employee. It is earnings for the year the loan is written off.

In Clayton v Gothorp (47TC168) a county council made a loan to a health visitor to enable her to take a full-time training course. Under the terms of the agreement with her employer the obligation to repay the loan was to be cancelled if she served the council as a health visitor for a further period after the end of the course. She did so and claimed the lapse of the obligation to repay the loan did not make it a chargeable emolument. The High Court held it was a profit from the employment for the year of assessment in which the obligation to repay ceased.

For directors and employees (who for 2015/16 and earlier only are not in lower paid employment for 2015/16 and earlier only) the writing off of a loan may be taxable under the benefits code if it is not taxable as earnings within Section 62 (see EIM26114 and EIM21740 onwards).