Income Tax (Earnings and Pensions) Act 2003 section 176

Exception for loans on ordinary commercial terms

Section 176 prevents loans made by employers whose business includes lending money or supplying goods on credit from being treated as taxable cheap loans, provided those loans are made on ordinary commercial terms comparable to those available to the general public.

• A loan made in the ordinary course of a lending or credit business is not a taxable cheap loan if it meets one of three conditions confirming it was offered on genuinely commercial terms
• The core test is whether comparable loans were available to the general public on the same terms, and whether a substantial proportion of such loans were actually made to members of the public
• Where a loan has been varied, separate conditions apply depending on whether the variation occurred before or on or after 6 April 2000, but both require the varied terms to match those available to public borrowers
• Incidental fees, commission, penalties and interest arising from obtaining or varying a loan are disregarded when comparing whether loan terms are the same