Employers providing loans to employees or directors need to ensure they correctly calculate any taxable benefit using HMRC’s official rate of interest. Where a loan is provided at no interest or at a rate below the official rate, a taxable benefit may arise. These types of loans are referred to as beneficial loans.
A beneficial loan therefore occurs when the interest paid by the employee or director is less than the interest that would have been payable using HMRC’s official rate of interest. The taxable benefit is generally calculated on the difference between the interest due at the official rate and the amount of interest actually paid.
The official rate of interest is set by HMRC and is used to calculate the taxable benefit for each tax year. Employers must use the correct rate when reporting benefits through payroll or on form P11D. The rate may change over time, so employers should check the applicable rate for the relevant tax year. For the 2026-27 tax year, HMRC’s official rate of interest is 3.75%. Employers should use the correct rate for the relevant tax year when calculating the taxable benefit on beneficial loans.
For example, if an employee receives an interest-free loan, the employer must calculate the interest that would have been charged using the official rate and report this amount as a taxable benefit, unless an exemption applies.
Certain loans may be exempt from the beneficial loan rules, including some small loans where the total outstanding balance does not exceed £10,000 throughout the tax year.
Employers should review any loans provided to employees or directors regularly to ensure the correct calculations are made and benefits are reported accurately.
