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Employers who offer loans to employees or their families must comply with specific National Insurance and reporting requirements. A benefit will arise if the employer lends an employee money and charges them interest at a rate lower than the official interest rate.
Calculating the cash equivalent value of a loan can be quite complex, and HMRC has a worksheet to help with this.
💡 Certain types of loans do not have to be reported. This includes loans you provide:
- In the ordinary 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 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 (this mostly applies to commercial lenders).
- That are ‘qualifying loans’, meaning all the interest qualifies for tax relief - see the technical guidance to explain this complex area.
- Using a director’s loan account as long as it’s not overdrawn at any time during the tax year.
For more information on Section H, please visit this website.
Please note – This guideline is not exhaustive, and it does not cover every eventuality. Its main focus is on the most typical scenarios that usually happen in reality. It's important to be aware of other possibilities as well. If you need more detailed information, please refer to the HMRC website. Always consult a tax advisor if you have any doubts or queries.