Where an employer lends money to an employee or director it can count as a taxable benefit in kind. However, there are many exemptions and rules to navigate. Plus, there’s an opportunity for employers and employees to make elections to reduce the tax bill if the loan is taxable.
The Flow Chart - Employer-provided Loans will help employers decide whether they need to treat a loan to an employee or director as taxable.
Definitions for flow chart:
Official rate of interest - the rate set by the government. The official rate is 2.25% with effect from 6 April 2023.
HMRC provides general information about calculating the taxable benefit for employer loans at https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees
For the purpose of calculating and possibly mitigating the amount of tax payable you might find our Election to Aggregate Loans and Election for Alternative Loan Interest Calculation helpful.