Income Tax (Earnings and Pensions) Act 2003 section 184

Interest treated as paid

Section 184 provides that where an employee is taxed on the benefit of a cheap or interest-free loan, the cash equivalent of that benefit is treated as if it were interest actually paid by the employee, so that tax relief may be available if the loan is for a qualifying purpose.

• When the cash equivalent of a taxable cheap loan is charged as earnings, the employee is treated as having paid interest on the loan equal to that cash equivalent.
• This deemed interest cannot be used as a deduction against other employment benefit charges, such as those for expenses payments, cars and vans, or residual taxable benefits.
• The deemed interest is treated as accruing during the period in the tax year when the employee holds the employment and the loan remains outstanding, and as paid at the end of that period.
• The deemed interest is not treated as income of the lender, nor as mortgage interest payable under deduction of tax.