HMRC internal manual

Employment Income Manual

EIM26270 - The benefits code: beneficial loans: cash equivalent of loan treated as interest paid

Sections 175(1) and 184 ITEPA 2003

An amount equal to the cash equivalent of the benefit of any loan is treated as paid by the employee as interest in respect of that loan. This is only relevant if the loan is a qualifying loan (see EIM26137) on which not all of the interest qualifies for relief. Qualifying loans on which the whole of the interest qualifies for relief are exempt (see EIM26135).

The amount treated under section 175(1) ITEPA 2003 as interest paid is so treated for all the purposes of the Income Tax (Earnings and Pensions) Act 2003 (other than Part 3 Chapter 7 ITEPA 2003 itself).

Note that the amount treated as interest paid is not treated as interest received by the lender.

The notional interest is treated as accruing during the year and paid on 5 April in the year unless the employee ceases to be in an employment to which the benefits code (see EIM20007) applies. In that case the interest is treated as paid on the last day in the year on which the employee is in such employment.

The effect of treating an amount equal to the cash equivalent chargeable in respect of a loan as interest paid, is that the employee is given whatever relief (for example under section 353 ICTA 1988, or in computing profits chargeable as trading income (see BIM45650 onwards), or as property income would have arisen if that amount had actually been paid as specified above.