Benefits Code II: Not Low Paid Employees

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A loan includes any form of credit; as such, an advance of salary is caught.¹⁴² It has been held that an interest-free equity loan, under which the borrower is to repay not the exact sum received but a proportion of the proceeds of sale of a property bought with the aid of the loan, is still a loan.¹⁴³ In Grant v Watton¹⁴⁴ G, an estate agent, formed a service company to provide services to the business in return for fees from G’s business. G was a director of the company. The court held that when the business failed to pay the fees to the company on time the company was providing G with a form of credit; as G was a director of the company tax was due under section 175 (section 160). In another tax context it has been held that a loan requires consensus, so that a misappropriation by a director did not give rise to a loan.¹⁴⁵

The loan must be employment-related but may be made to the employee or to his relatives.¹⁴⁶ Relative is defined differently from family and means spouse, lineal ascendant or descendant, brother or sister of the employee or the spouse, and the spouses of those people.¹⁴⁷ It is, however, open to employees to show that they derived no benefit from the loan.¹⁴⁸

17A.4.3.1    Exclusions

1. De minimis. The charge does not apply if the total of all such loans does not exceed £5,000.¹⁴⁹ At one time the exclusion was by reference to the amount of the cash equivalent of the loan, but this entailed all the expense of calculating the cash equivalents.

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