SE26257 - Beneficial loans: calculating the cash equivalent: late 'interest' payments: doubt about obligation to pay interest

You can only admit a claim to deduct interest paid when calculating the cash equivalent of a beneficial loan ( SE26250) if a legal obligation to pay the interest existed during the income tax year concerned.

If a taxpayer claims that he was under a legal obligation, which existed in the year concerned, to pay interest in respect of a loan which was apparently interest-free, ask him what evidence is available regarding the existence of that obligation. If there is no evidence of such an obligation do not allow the so-called interest when calculating the cash equivalent. See SE26258 before setting down any appeal for hearing by the Commissioners.

In particular do not admit a claim to relief under SE26255 in any case where

• you are not satisfied that the taxpayer was under a legal obligation to pay interest on an apparently interest-free loan or
• so-called interest is paid under a retrospective agreement entered into after the end of the Income Tax year concerned.