Beneficial Loans and Paying Interest

I have received a loan of £10,000 from my employer, on which interest is chargeable at the current HMRC official rate. 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 benefit in kind?

1st July 2011

You will have a benefit in kind, based on the difference between interest calculated at the HMRC official rate and the amount actually paid to the company during the same year. 

Therefore because you will not physically 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 until the year in which the loan is repaid and the accrued interest is settled. 

Once the interest has been paid, a retrospective claim for relief can be made for up to six years after the tax year the benefit occurred in.

If you would like more advice on expenses and benefits or wish to discuss something else tax or accountancy related, please feel free to contact your local TaxAssist Accountant.

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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