WI (UK) Ltd

Our client is the Director and owner of the share capital of the company. His son is an employee of the company. He received £5,500 from the Company in order to replace his car. The legislation states that, an employee loan up to the amount of £10,000 is non-taxable. However, HMRC emphasized that the loan is attributed to our client and as the amount is more than £5000, she is taxable on the whole of benefit. HMRC laid emphasis on the rule that the loan to a relative of a Director will be treated as a loan to the Director and will be taxed respectively. However, we argued on the exemption in the rule whereby the Director is not liable on the loan if he/she does not derive any benefit from the perk obtained through that loan. In reply to this, HMRC quoted EIM26150 and argued that any loan will result in a feeling of well-being for the Director so the benefit is thoroughly taxable.

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Thereafter, we pointed to the HMRC case inspector that the Director is liable to pay tax on the perk if it is money’s worth. The feeling of well-being is not worth any money, so the Director is not liable to pay tax on it. Our counterargument did not finish here. In the favour of our client, we pointed out to the Tax Inspector that S.455 charge does not apply where the following conditions are met:

  • The amount of loan is not more than £15,000
  • The borrower is working Full time for the Company
  • They do not have a material interest in the Company. This implies that they do not own or have a controlling interest of more than 5% in the Company.

Since all these conditions were fulfilled, the S.455 tax had to be scrapped and the case was won eventually in our client’s favour.