Expenses and benefits: loans provided to employees

1. Overview

1. Overview

As an employer providing loans to your employees or their relatives, you have certain National Insurance and reporting obligations.

What’s included

There are different rules for:

  • providing ‘beneficial loans’, which are interest-free, or at a rate below HMRC’s official interest rate
  • providing loans you write off
  • charging a director’s personal bills to their loan account within the company

Beneficial loans

The rules cover beneficial loans advanced, arranged, facilitated, guaranteed or taken over from someone else by:

  • you (the employer)
  • a company or partnership you control
  • a company or partnership that controls your business
  • a person with a material interest in your business

See the technical guidance for what to do in more complicated situations, eg if you use third-party arrangements to make a loan to your employee.

1. What's exempt

2. What’s exempt

You might not have to report anything to HMRC or pay tax and National Insurance on some types of beneficial loans.

This includes loans you provide:

  • 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)
  • with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year (£5,000 for 2013 to 2014)
  • 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 general public as well (this mostly applies to commercial lenders)
  • that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief – see the technical guidance for an explanation of this complex area
  • using a director’s loan account as long as it’s not overdrawn at any time during the tax year

1. What to report and pay

3. What to report and pay

If the loans you provide aren’t exempt, you have to report the costs to HMRC, and deduct or pay National Insurance on them.

Beneficial loans

If you or your business provides a beneficial loan, as defined in the overview, you’ll need to:

Loans you write off

You always have to report and pay on loans to employees that you write off, whether or not they are classed as beneficial loans.

You must:

1. Work out the value

4. Work out the value

You can work out the value of loans using HMRC’s PAYE Online or commercial payroll software.

You can also work out the value manually on P11D working sheet 4.

1. Technical guidance

Last updated: 15 July 2016

 

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