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Exempt beneficial employee 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 obtained elsewhere. These types of loans are referred to as beneficial loans.

There are scenarios where beneficial loans are exempt and employers might not have to report anything 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 the public as well (this mostly applies to commercial lenders)
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief
  • using a director’s loan account if it is not overdrawn at any time during the tax year.

HMRC’s official interest rate is currently 2%.

Source: HM Revenue & Customs Wed, 23 Jun 2021 00:00:00 +0100

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Some accountancy websites also provide pages and pages of tax information, helpsheets, etc. We prefer to give clients personally tailored advice. So, if you want details of tax rates and allowances just go to the HMRC website on which you should find what you’re looking for. If you need more individual advice please contact us.

Below are links to websites you may find of interest, but as we like to support our local community and clients, we have included links to websites that may be of interest:

HMRC
FT
BBC
VEALE WASBROUGH VIZARDS
CESP
PRACTICE INDEX
SIMCOMM ACADEMY

More Local:
FOOTPLATE EXPERIENCE
ANGLEBURY PRESS
OFFCAMBER.CO.UK