Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 195: Discharge of notional loan: amount treated as earnings
771.This section covers the circumstances in which a notional loan is treated as discharged and the consequences of that treatment. It is derived from section 162(3), (4) and (5) of ICTA and contains new drafting material.
772.Subsection (1) sets out circumstances in which the notional loan is treated as discharged. The words “is released, transferred or adjusted” in section 162(4)(b) of ICTA have been left out on the grounds that they are unnecessary. There is no other way that the obligation could cease to bind the employee. The words “by surrender or otherwise” in section 162(4)(c) of ICTA have not been used in paragraph (c) because they are unnecessary.
773.Subsection (2) provides that the amount of a notional loan discharged in the circumstances described in subsection (1)(b) and (c) is treated as earnings.
774.Subsection (3) ensures that the amount in subsection (2) can be chargeable in a tax year after the year in which the employment has ended or has become an excluded employment as defined in section 63(4) of this Act. This derives from section 160(3) of ICTA, which is applied to the termination of a notional loan by section 162(5) of ICTA. If the employment has ceased there is no taxable employment and the section would not apply. Deeming the employment not to have ceased allows the section to apply in the case of the discharge of a notional loan for the year in which the event as a result of which it is discharged occurs. It is also necessary for the employment to be one which is not an “excluded employment” otherwise the section would not apply. Where the employment has become an “excluded employment” this subsection deems it not to be “excluded”.