Employers may provide small or modest loans to individual employees, at low or zero interest, to help with one-off costs such as a car repair, travel season ticket, or perhaps a gas bill.
The loan needs to be properly documented with clear repayment terms. Where the total amount of loans made by the employer to the employee doesn’t exceed £10,000 at any point in the tax year, there is no benefit-in-kind to declare. In other cases, a benefit will have to be declared on the annual P11D form.
Additionally, loans to persons connected with the company (e.g. director-shareholders) need to be declared in the company’s tax return. The £10,000 threshold mentioned above is irrelevant for these purposes. The company must also pay tax on any loan balance still outstanding more than nine months after the end of the accounting period in which the loan was provided. If the loan is written-off, it will be taxed as a dividend received by the director-shareholder, but oddly national insurance is usually due!
We can help you calculate any tax charges connected with loans provided to employees or directors.
