Many employers will advance modest loans to employees to meet upfront costs which they necessarily incur to enable them to work, such as a travel season ticket or a deposit for childcare costs. Such loans can also be provided to help towards other unexpected costs such as a car repair or gas bill.

The loan needs to be properly documented with clear repayment terms but there is no obligation on the employer to charge interest on the outstanding capital.

Where the total value of loans made by the employer to the employee does not exceed £10,000 in the tax year there is no benefit in kind to declare. A larger total will have to be declared on the annual form P11D for the employee and the benefit is calculated as the interest that the employee should have paid at the official rate (currently 2.5%).

If the loan is advanced to individuals connected with the company (eg directors or shareholders) it must be declared on the company's tax return. The company must pay tax on any loan balance outstanding more than nine months after the end of the accounting period in which the loan was provided.

We can help you calculate any tax charges connected with loans provided to employees or directors.

Last updated: October 10th 2022.