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HMRC internal manual

Employment Income Manual

The benefits code: beneficial loans: calculating the cash equivalent: late interest payments: doubt about obligation to pay interest

Obligation to pay interestYou can only admit a claim to deduct interest paid when calculating the cash equivalent of a beneficial loan (see

EIM26250) if a legal obligation to pay the interest existed during the income tax year concerned. See Morley-Clarke v Jones (59TC567).

If an employee claims that he or she was under a legal obligation, which existed in the year concerned, to pay interest in respect of a loan that was apparently interest-free, ask for whatever evidence is available regarding the existence of that obligation. If there is no evidence of such an obligation do not allow the so-called interest when calculating the cash equivalent. See EIM26258before any appeal is notified to the independent tax tribunal.

In particular do not admit a claim to relief under EIM26255in any case where:

  • you are not satisfied that the employee was under a legal obligation to pay interest on an apparently interest-free loan, or
  • so-called interest is paid under a retrospective agreement entered into after the end of the income tax year concerned.