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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 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 of the loan.

If the loan is made to a director or employee, the amount of the loan released will be treated as employment income. See the Loans provided to employees guidance note. However, if the loan is made to a shareholder and the company is a close company, the release of the loan is treated as dividend income and taxed accordingly (see below).

Remember that, as with any other kind of employment reward, if the loan is provided by a third party rather than the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, ss 554A–554Z21