Income Tax (Earnings and Pensions) Act 2003 section 187

Aggregation of loans by close company to director

Section 187 allows a close company that has made multiple cheap loans to one of its directors to elect to treat those loans as a single loan for the purposes of calculating the taxable benefit.

• Where a close company has made more than one employment-related loan to the same director, it may elect to aggregate those loans for a given tax year, so they are treated as a single loan when calculating the taxable cheap loan benefit, the cash equivalent of that benefit, and any interest treated as paid.
• Loans can only be aggregated if they are in the same currency, the loan is outstanding at some point during the tax year while the lender is a close company and the borrower is a director of that company, the interest rate on each loan is below the official rate throughout the year, and the loan is not a qualifying loan (as defined for the £10,000 threshold exemption).
• The election must be made by the lending company by notifying an officer of His Majesty's Revenue and Customs before 7 July following the end of the relevant tax year.
• Aggregation simplifies the benefit-in-kind calculation by treating multiple loans as one, which can be particularly useful where a director has received several separate loans from the same close company over time.