Refinancing was not payment

A company set up an employee benefit trust for two directors and one employee. Loans under discount loan agreements were made to the three individuals through the trust.

HMRC said the loans were liable to tax under ITEPA 2003 s 175 and to class 1A National Insurance (NI).

The company and the borrowers appealed claiming s 175 did not apply because directors and employee had to repay a sum described as a “discount” at the end of the loan period of ten years.

The First tier Tribunal said the loans had been rolled over under revised arrangements after the ten-year term and noted the employee had not repaid his loan until 14 years after the original agreement.

The directors could not be “treated as having paid the interest since it has not actually from their  perspective been discharged”.

Other than the signing of the new loan...