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HMRC internal manual

Employment Income Manual

Para 12: loan charge relevant step: disregarded payments for outstanding quasi-loans

Schedule 11 F(No 2)A 2017

Where payments in money are made on or after 17 March 2016 by the relevant person or assets are transferred against the initial debt amount of the quasi-loan, the outstanding balance on which the loan charge is based will be reduced by the amount of these repayments. There are however exceptions to this. Certain payments are disregarded as repayments towards the initial debt amount of the loan.

If there is any connection between the payment or asset transfer and a tax avoidance arrangement (other than the arrangement under which the quasi-loan was made), the payment will be disregarded as a repayment towards the initial debt amount.

Where a payment was made or an asset was transferred and is subsequently used before the end of 5 April 2019 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 that relevant step has been paid in full by the end of 5 April 2019 (including agreeing terms with HMRC to settle the liability), the payment can count as a repayment against the initial debt amount.

The effect of this is to prevent repayments or asset transfers 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 two 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.