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:

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