HMRC internal manual

Employment Income Manual

EIM26110 - The benefits code: beneficial loans: meaning of making a loan: loan made by third party; employee benefit trust

Section 173(2)(b) ITEPA 2003

Making a loan includes:

  • arranging a loan and
  • guaranteeing a loan and
  • in any way facilitating a loan and
  • taking over a loan from another person.

Loan made by a third party - employee benefit trust

It is not uncommon for a third party, such as an employee benefit trust (EBT), to make a loan to a beneficiary who is also an employee of the employer which is associated with the EBT. It is sometimes suggested that the loan is not an “employment-related loan” (EIM26113) because the definition of that term does not include a loan provided by a third party.

Whilst it is true that the definition includes no reference to a third party loan provider, HMRC does not accept that the loan is not an employment-related loan. The definition of “employment-related loan” includes a loan made by an employee’s employer. As “making” a loan includes “in any way facilitating” a loan, if the employer provides the money to fund the EBT, the employer is regarded as making the loan.

Consequently for the purposes of the loan benefit rules, the EBT is ignored and the loan is treated as made directly by the employer to the employee. It follows that the loan is an employment-related loan.

Employment income provided through third parties

Finance Act 2011 introduced new rules that apply to third party arrangements used to provide for what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former, or future employment See EIM45000 onwards. Where these rules apply, they take priority over the rules on employment-related loans.

The rules apply with effect from 6 April 2011. However, certain transactions carried out between 9 December 2010 and 5 April 2011 inclusive (including loans) are covered by anti-forestalling rules. See EIM45900 onwards.