Flow chart - employer-provided loans

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.

Flow chart

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:

• Qualifying loan - a loan where tax relief against general income is allowed for the interest paid.
• Relatives - for the purpose of employer-provided loans means:
  • the employee’s spouse
  • the parents, children, and brothers and sisters of both spouses
  • remote ancestors or descendants of both spouses, for example, grandparents and grandchildren
  • the spouses of all the persons mentioned above

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

Documents

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.