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Benefits Code II: Not Low Paid Employees |
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17A.4.3.2 Relation to Other Tax Rules |
Although the tax system provides relief for such interest under these rules, it first treats the cash equivalent of the benefit as arising, and then allows the deemed amount to be deducted under the other rules.156 |
Where there is a taxable cheap loan and so the cash equivalent is treated as earnings from the employment for the year, the employee is treated as having paid interest on a loan equal to the cash equivalent.157 The deemed payment accrues during the year but is treated as paid at the end.158 The interest is not treated a income of the lender nor it is relevant loan interest.159 Not surprisingly E is not allowed to say that he has paid the interest and so there should be no tax liability.160 |
It is unclear whether an amount treated as an emolument can be a distribution under schedule F. TA 1988, section 20 suggests that schedule F should prevail; what is clear is that it cannot be both. |
17A.4.3.3 Pre-Employment Loans |
Sections 173 and 174 refer to ‘employment-related loans’ a term which refers to a loan made by the employee’s employer and certain other similar situations. Where a loan was not made and, some time later, the employment begins and the rate of interest is reduced, it is uncertain whether a charge to arise.161 It is clear that section 186 replacement loans does not apply since that refers only to one such loan replacing another. |
17A.4.3.4 Calculating the Cash Equivalent: The Official Rate |
Section 175 applies whether the employee pays no interest or pays at a rate below the official rate. If the employee pays no interest, the cash equivalent will be the notional interest calculated at the official rate; if, however, he does pay interest, only the difference between what is actually paid for the year and what would be due at the official rate is |