Unfortunately it is correct. If an employer provides an employee with a subsidised loan, the employee will be assessed on the difference between the interest rate actually charged and what is known as the “official rate” of interest. The employee will then pay income tax (20% if you are a basic rate taxpayer, 40% if you are a higher rate taxpayer and so-on) on the value of the benefit received each year. So it is still more beneficial to take up the low interest loan you have been offered.
Despite being charged tax on the benefit of having the low interest loan, you would not be liable to make any National Insurance Contributions, as your employer would be liable to pay these.
If you would like some personal tax advice or wish to discuss something else tax or accountancy related, please feel free to contact your local TaxAssist Accountant.
By Jo Nockels
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