Loans to directors and staff

If a company makes loans to its employees (including directors) there may be tax consequences. The same may also apply to loans extended to their family members.

For example, the employer will have an obligation to report a beneficial loan to HMRC (and pay Class 1A NIC) and the deemed benefit would be a taxable benefit in kind for the relevant employee.

A beneficial loan is one that is interest free or the rate charged is below the “official rate” and the benefit is the difference between these interest rate charges.

Fortunately, not all loans create a tax problem, certain loans are exempt from this reporting obligation. These could include loans employers provided:

  • 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 balance due from an employee of less than £10,000 throughout the whole tax year,
  • to an employee for a fixed and never changing period, and at a fixed and constant rate that was equal to or higher than HMRC’s official interest rate when the loan was taken out – the current rate is 2.5%,
  • under identical terms and conditions as those provided to the public (this mostly applies to commercial lenders),
  • that are ‘qualifying loans’, meaning all the interest charged to the loan account qualifies for tax relief.

Loans written off will also create a National Insurance Class 1 charge for the employee. They must be reported on a P11D and the employer has an obligation to deduct and pay Class 1 NIC, from the employee’s salary, on the amount written off for tax purposes.

And finally, loans by a company to its directors or shareholders may create additional corporation tax charges.

If you are contemplating loans to employees (or director/shareholders) or have current loans outstanding can we suggest that we undertake a review to ensure any tax consequences are minimised.

Share:

Share on facebook
Share on twitter
Share on pinterest
Share on linkedin
Accounting in Sheffield and Doncaster Certificates

Recently Added News

Contact details or else…

Hospitality trades are now mandated to collect the contact details of customers. Which logically assumes that if a customer refuses to provide this information they

Read More »

Related News

Are taxes on the increase?

There has been the usual political speculation that taxes will be increased in the forthcoming budget to pay for COVID grants and support. Leaving aside

Appointment of a New Director

Phil Emery, who is based at our Doncaster office, at Ten Pound Walk, has been appointed to the Board. Royston Parkin, prides itself on taking

Quick Links

Online References...
Client Testimonials
Meet the Team

Sheffield Office:
2 President Buildings,
Savile Street East,
Sheffield ,
South Yorkshire,
S4 7UQ

Telephone:
0114 272 0306
Fax:
0114 272 6158
email:
sheffield@roystonparkin.co.uk

Opening Hours:

Mon-Wed: 8.30am – 5pm
Thursday: 8.30am – 7pm
Friday: 8.30am – 2pm

Doncaster Office:
3 Railway Court,
Ten Pound Walk,
Doncaster,
South Yorkshire,
DN4 5FB

Telephone:
01302 320444 / 304440
Fax:
01302 342604
email:
doncaster@roystonparkin.co.uk

Opening Hours:

Mon-Thurs: 9am – 5pm
Friday: 9am – 4.30pm