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HMRC internal manual

Enquiry Manual

Close Companies: Settlement: Writing off or Releasing the Director's Loan

Where a loan made to a participator who is an employee is written off or released, the sum involved usually satisfies the definition of earnings in Section 3(1) Social Security Contributions & Benefits Act 1992 and thus is regarded as earnings for the purposes of calculating Class 1 NICs.

After 5 April 1999 relief under CTA10/S458 can be obtained where a debit loan balance is written off or released by the company. This might be used rather than the company being reimbursed by the director(s) to obtain S458 relief to reduce the net amount required to be paid under a contract settlement. Where this is proposed you should warn the company about the Class 1 NIC liability and, unless the liability is covered by the settlement arrangements, notify the appropriate Employer Compliance Unit to pursue this with the company.