Employee Loans

Employee Loans

Overview

As an employer, you may often be willing to lend company money to a director or employee.

This could be to help them pay for a season ticket to commute to work, to help an employee relocate to a new area, or to help a valued employee get over a financial difficulty.

Questions you may ask:

  • When is an employee loan seen as beneficial?
  • How is the benefit of an employee loan calculated?
  • Are all employee loans seen as a taxable benefit?

How does it work?

Please see below more details with regards employee loans and the amounts that can be made interest free to employees and how the benefit in kind charge is calculated on beneficial loans to employees.

Beneficial Loans

A beneficial loan is one where the employer lends money either interest-free or at a lower rate of interest than HMRC considers commercially available. This loan can therefore be treated as a benefit in kind (BIK) on which the employee must pay income tax. the BIK charge is calculated on the loan value to the employee at the official rate of interest ( currently 3%) less any interest payments made by the employee.

Interest Free Loans

Loans below £10,000 a year are not regarded as a taxable benefit, so only loans in excess of this will potentially suffer a charge to tax. This limit applies to the total of loans made to the employee and applies throughout the tax year.

The information provided is based on existing and proposed legislation as at November 2017 (2017 Autumn Budget). Whilst every effort has been made to ensure that information given is accurate and not misleading, this information is intended to provide a quick reference to the current tax regulations relating to company vehicles and how they impact employers and employees. The content has been provided for informational purposes only and should not be relied on as a substitute for professional advice. No responsibility can be accepted by LetsTalkFleet Ltd for any loss or liability occasioned by any person acting on or refraining from action as a result of viewing this information.