| [s179, sch 30] |
All loans to employers must be repaid in equal instalments of
capital and interest for each complete year of the loan, beginning
on the date that the loan is made and ending on the last day of the
following 12 month period – known as a loan year.
If the loan is for less than a complete year, then the
incomplete year is treated as the final year of the loan.
The amount of capital and interest repayments payable each
loan year are referred to as the required amount and is calculated
by the formula
[(L+TIP) / TLY] x NLY
Where
L is the amount of the loan
TIP is the total interest payable
TLY is the total number of loan years and
NLY is the number of loan years in the period.
XYZ Ltd
Registered Pension Scheme makes a loan to XYZ Ltd
on 1 January 2007 of £50,000 for a period of 5 years. The
total interest chargeable on the loan over the period is
£20,000. The following repayments must be made by the company:
The required amount repayable by the company at the end of
the first loan year and subsequent years is
[(50,000 + 20,000) / 5] x 1 = £14,000
An unauthorised payments tax charge will be charged if the terms of the loan mean that the required amount is not due to be paid by the borrower during any loan year. This amount is calculated at the beginning of the loan for each loan year and the unauthorised payment is the largest amount by which the payments due in any loan year are less than the required amount - see RPSM07103150.
| Glossary ( RPSM20000000) |
