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HMRC internal manual

Employment Income Manual

Para 2(2): loan charge relevant step: meaning of quasi-loan

Schedule 11 F(No 2)A 2017

In an attempt to circumvent the provisions of Pt 7A some avoidance schemes used contrived contracts to shift liabilities for loans between parties. The use of tri-partite agreements was a common feature in such schemes. It was never believed that these arrangements were successful but in order to ensure that such schemes do not circumvent the loan charge, its provisions work to ensure that such value shifting arrangements are clearly caught.

The schedule introduces the concept of a quasi-loan. A third person (P) makes a quasi-loan to a relevant person if and when P acquires a right to a payment or a transfer of assets. The acquisition of that right has to be connected with a payment made by way of a loan or otherwise or a transfer of assets to the relevant person.


An employer makes an EBT contribution in 2008. The trustees make a loan to the company from that contribution also in 2008. The loan remains outstanding but the in 2014 the employer wishes to close down the EBT but to do so in a manner which does not involve repaying the loan and having to engage Pt 7A when it is finally taken out by a shareholding director.

An agreement is drawn up between all parties:

  1. The trustees agree that if the employer can procure that the director agrees to repay them an amount equivalent to the amount owed by the employer, they will treat the amount owed by the employer as repaid. 
  2. The employee agrees to repay to the trustees the amount owed by the employer in a period of 10 years time if they are paid an equivalent amount. 
  3. In consideration for taking on the employer’s obligation the employer makes a payment to the employee, either in cash or via the employee’s loan account.

The original loan was from the trustees to the employer. This is a loan to a relevant person since Para 1(5) imports the definition of relevant person from section 554C(2) and (3). The employee is a shareholding director and the company is therefore linked to him or her in terms of section 554Z1 (see EIM45860).

At the point that the trustees agree that the employee can pay them an amount in satisfaction of the debt owed by the employer, they acquire a right to a payment. The right to the payment is connected to a loan made to a relevant person and to the payment to the employee at point 3 above so the conditions of Para (2)(2) are satisfied. P has made a quasi-loan.