Expenses and benefits: loans provided to employees

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.

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
to employees earning at a rate of less than £8,500 per year (if they aren’t directors)
using a director’s loan account as long as it’s not overdrawn throughout the tax year

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:

report on form P11D
pay Class 1A National Insurance on the value of the benefit

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.

Who gets the benefit	What to do	What to deduct or pay
Employees earning at a rate of less than £8,500	Fill in form P9D	Deduct and pay Class 1 National Insurance (but not PAYE tax) on the value of the benefit
Employees earning at a rate of £8,500 or more	Fill in form P11D	Deduct and pay Class 1 National Insurance (but not PAYE tax) on the value of the benefit
Directors	Fill in form P11D	Deduct and pay Class 1 National Insurance (but not PAYE tax) on the value of the benefit

Work out the value

You can work out the value of loans using HMRC’s online tools through the PAYE Online for employers service, or commercial payroll software.

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

Technical guidance

The following guides contain more detailed information:

back to index

Made Smarter WM

Made Smarter is a national movement to drive growth amongst UK makers and advance the UK economy. Backed by world renowned businesses and the UK government, it will improve the development and adoption of emerging technologies. Making a real, everyday difference to people from the boardroom to the factory floor.

Find Out More

Looking for work, or have vacancies to fill?

CW Employment Solutions offers a service for job seekers and employers, recruiters and education leavers, to connect, find jobs, post vacancies and access the wealth of support measures that have been implemented across the region.

Click Here to Find out More

News

Growth in the pipeline as Coventry company makes move

The importance of building long-term growth opportunities for businesses

Key promotions made at University of Warwick Science Park as it focuses on growth

Remember to bring your photo ID to vote

New chair of Local Business Forum for the north of Warwickshire

Client testimonials

Without the Growth Hubs help and assistance, we would never have been able to increase our sales & output and also grow our local business. With this help in purchasing new equipment we have expanded our operations and gained a new and increased customer base.

Nuneaton Roof Truss,

Over the past few years, Armstrongs has built up a fantastic relationship with Gary Thyeson from the Growth Hub. His advice on grants and funding has been really valuable to both Armstrongs and some of our clients. His knowledge of local business support has been helpful in signposting us to relevant support agencies as required. We look forward to working with Laura Delahunty moving forwards.

Armstrongs Accountancy LTD,

In the short time since first engaging with the Warwickshire Growth Hub we feel that Laura has understood our vision and has been so very supportive in linking us to the specialist teams who are now supporting us with training, finance and recruitment. A great service that every growing organisation should connect with

MES Systems Limited,

I have had an excellent experience working with Laura from the Growth Hub, from day one, she was taking detailed attention to my concerns and ideas. She was able to put me in contact with different organisations and people to find out answers to my questions and help me to solve some inquiries I was having. I feel this support definitely had a positive impact in my plans.

PALACIOS LTD,

It’s been a fantastic inaugural eight months for the TalentTech Recruitment team and, although the reality of setting up and running a company can be a somewhat daunting experience, we have been extremely grateful for the superb help, advice and guidance given to us along our journey by Gavin Barnett and the team at CW Growth Hub. Gavin’s introductions to both Warwick & Coventry Universities and his wider business network have been absolutely invaluable.

TalentTech Recruitment LTD,

For many individuals out there, it is very hard to figure out ways and know which direction to go when it comes to setting up a business. The challenges of taking your idea and bringing it to life and not knowing where to go and who to speak to for advice. it can get very frustrating..

King of Saffron LTD,

This grant [which we received with the help of the Growth Hub and Coventry City Council] will really help us get on track for business growth and succeed with our vision. Personally, I would also like to thank the team for supporting me through the grant application process. You have been very approachable and attentive throughout.

Exeter Analytical (UK) Limited,

Thank you for the comprehensive and professional guidance

Burbidge & Son Ltd,

Over the years since the Growth Hub was set up we have habitually gone to our Account Manager as a one-stop shop for all business-related information. It has been a really convenient way of finding suppliers, advisors and, on one occasion, we even asked for assistance with finding customers. We are invited to a wide range of business events including business development workshops, Brexit roundtable discussions, seminars on various topics and have also been asked to speak at some events. When we have needed additional information, for example, finding finance sources or help with selecti

Marchantcain Design Limited,

Thanks to CW Growth hub getting us access to grant funding we have been able to invest in the latest computer monitoring system, which will enable us to compete with the national companies within our industry.

Comrie Leisure Limited,