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HMRC internal manual

National Insurance Manual

NIM02210 - Class 1 NICs : Earnings of employees and office holders : Loans

Some employers may make loans to employees. These payments are not earnings but a debt which the employee owes to the employer. It makes no difference if the employer finances the loan from its own funds or from another source.

If the employer decides not to ask the employee to pay back any part of a loan and simply writes it off without seeking anything from the employee in return for giving up the debt, the amount written off becomes earnings and will be liable for Class 1 NICs at the time of write- off.

In circumstances where a loan is not pursued you must therefore satisfy yourself that the only reason the loan has been discharged is the fact that the individual is an employee rather than because of any arrangements between the employee and the employer to settle the debt. For example, an employee might provide an asset to the employer in consideration for discharging the debt. In that event the amount of the settlement would not attract a NIC liability.

See NIM02010 for guidance on the meaning of “earnings” and NIM02240 for information regarding mortgages and mortgage subsidies.

See NIM13000 for guidance on Class 1A NICs and beneficial loan arrangements.