Beneficial Loans and Paying Interest

I have a loan of over 5,000 from my employer, on which interest is charged at the current HMRC official rate (4.75%). However, the interest is not payable until the end of the loan period. In the interim period the interest is rolled up and carried forward. Does this give rise to a reportable benefit in kind?

1st December 2009

Initially you will have a benefit in kind, as a benefit charge arises in each year to 5 April, based on the difference between interest calculated at the offical rate and the amount actually paid to the company during the same year.  Therefore because you will not pay the interest until a later tax year, the accrued interest cannot be taken into account when calculating the benefit in kind.

The benefit in kind should therefore be reported on form P11D for each tax year unti the year in which the loan is repaid and the accrued interest charge is settled. 

Once the interest has been paid, a retrospective claim for relief can be made, providing that you can demonstrate that a legal obligation to pay the interest existed. It is not sufficient to simply volunteer to pay interest in order to try and avoid a benefit.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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