Two equal one?

The taxpayer was employed by a bank from which she obtained two loans.

The first was for £35,000 with interest at 5.5%, the Bank of England rate at the time the loan was made. The other loan was for £105,000 and had an interest rate of 6.24%, 0.74% above the Bank of England base figure.

The smaller of the two amounts was a staff loan, but the taxpayer was unaware of the benefit-in-kind implications until she received more than three years later a letter from HMRC enquiring into her tax return.

Only the smaller loan was a beneficial one, but the whole sum received – £140,000 – should be treated as a single loan and taxed as a benefit in kind, the Revenue decided.

The taxpayer appealed, saying the £105,000 was a commercial loan, the terms of which were available to the general public. The tax department quoted ITEPA 2003, s 173(2)(a), saying “any kind of advance by reason of employment was covered”.

The First-tier Tribunal did not accept HMRC’s assertion there was only one loan. The judge decided the £35,000 was correctly chargeable under s 175, but the larger loan was exempt under s 176 because comparable loans could be taken by members of the public.

He noted that the taxpayer had initially sought a loan for the whole £140,000 because she had not realised she was entitled to a staff arrangement of up to £35,000 regardless of the total.

The taxpayer’s appeal was allowed.

Issue: 4455 / Categories: Tax cases , benefits in kind , employee loan , Employees , Income Tax