The exemption threshold for employer provided beneficial loans which do not attract a tax charge is rising from 6 April 2014 from £5,000 to £10,000. The limit applies to the combined value of all outstanding loans during the tax year. This means that provided the total of all outstanding loans to an employee (or their relative) during the year is less than £10,000 there is no benefit in kind charge on the employee and hence no reporting requirements on form P11D at the end of the tax year.

If the exemption threshold is exceeded then a benefit in kind charge arises. If no interest is charged or at a rate lower than the official average rate of interest set by HMRC, then the value of the benefit is calculated using the official average rate of interest (less any lower rate of interest charged to the employee). The official average rate of interest for 2014/15 has reduced from 4% in 2013/14 to 3.25%.

If you would like to discuss loans to employees including directors please contact us.