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HMRC internal manual

Employment Income Manual

Para 4: loan charge relevant step: disregarded loan repayments from 17 March 2016 onwards

Schedule 11 F(No 2)A 2017

There are exceptions to the rule that payments in money made on or after 17 March 2016 by the relevant person against the relevant principal amount of the loan will reduce the outstanding balance on which the loan charge is based. Certain payments are disregarded as repayments towards the relevant principal amount of the loan.

If there is any connection between the payment and a tax avoidance arrangement (other than the arrangement under which the loan was made), the payment will be disregarded as a repayment towards the relevant principal amount.

Where a payment was made which is subsequently used, either before 5 April 2019 or by the approved repayment date if the loan is an approved fixed term loan, as the subject of a relevant step, either as a sum of money or an asset, that repayment will also be disregarded.

Where the relevant tax liability on the relevant step has been paid in full (including agreeing terms with HMRC to settle the liability), the payment can count as a repayment against the relevant principal amount.

The effect of this is to prevent repayments being made against the loan and then being removed from the fund. Where the tax on the relevant step is paid, the repayment can still reduce the amount on which the loan charge is based.

There are 2 different types of relevant tax liability. Any liability which arises under Chapter 2 Pt 7A will count as a relevant tax liability. Where a relevant step also gives rise to an earnings charge such that section 554Z6 applies (see EIM45735), any liability in respect of those earnings will also be a relevant tax liability.