Beneficial tax-exempt loans

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan

An employee can obtain a benefit when provided with an employment-related cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the commercial rate the employee would have to pay on a loan obtained elsewhere. These types of loans are referred to as beneficial loans.

There are a number of scenarios where beneficial loans are exempt, and employers might not have to report a benefit to HMRC or pay tax and National Insurance. The most common exemption relates to small loans with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year.

The list also includes loans provided:

  • in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee);
  • to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out;
  • under identical terms and conditions to those offered to the general public (this mostly applies to commercial lenders);
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief; or
  • using a director’s loan account as long as it is not overdrawn at any time during the tax year.
Source: HM Revenue & Customs Tue, 14 May 2024 00:00:00 +0100

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