Companies sometimes provide directors, employees or shareholders with low interest or interest-free loans either as part of the reward package or on special occasions to help the individual meet significant expenditure. The employment income implications of these loans are discussed in detail in the Loans provided to employees guidance note.

Normally the loan is repaid, however occasionally the company may decide to write off (release) the loan, meaning the individual does not have to pay back the balance.

If the loan is made to an employee (including a director), the amount of the loan released is treated as employment income. However, if the loan is made to an employee who is also a shareholder and the company is a close company which has been taxed in respect of the loan, the release of the loan is treated as dividend income and taxed accordingly (see below).

HMRC guidance is from EIM26116. See also Simon’s Taxes E4.647.

If the loan is provided by a third party, rather