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Loans (including season ticket loans)

This guide explains how to report any cheap and employment-related loans that you provide to your employees or their relatives. These are sometimes referred to as beneficial loans.

The guide details the National Insurance contributions (NICs) you’ll have to calculate and pay us on these loans and it highlights which loans are exempt from reporting and NICs requirements. It also sets out how to deal with loans that you write off.

On this page:

What counts as a cheap employment-related loan?

If you provide an employee (or a relative) with an interest-free loan or you charge them a rate of interest below our official rate of interest, then it counts as a cheap loan. For more information about the official rate of interest, see the later section ‘Work out the value to report’.

A loan to one of your employees (or a relative) counts as employment-related if it is made by any of the following:

  • you
  • a company or partnership you control
  • a company or partnership that controls your business
  • a person with a material interest in your business

However, a loan is not employment-related if it is provided to someone in the normal course of a domestic or family relationship – for example, if you personally provide a cheap loan to a family member who works for you.

Note that a loan doesn’t have to be provided directly to an employee for it to be covered by the expenses and benefits rules. It is enough for you (or any of the others in the list above) to arrange, facilitate or guarantee a loan, or take one over from someone else.

Exemptions for certain types of loan

The general rule is that you must report cheap employment-related loans to us at the end of the tax-year, and pay us Class 1A NICs on the cash equivalent of the benefit of the loan (this is the difference between the interest paid by the employee and the amount they would have had to pay if they had borrowed at the official interest rate.)

However, there are exemptions. You do not need to report your loans to an employee or pay NICs on them if any of the following apply:

  • the combined outstanding value of your loans to an employee is less than £5,000
  • the loan is for a fixed and invariable period and at a fixed and invariable rate that was equal to or higher than the official interest rate when the loan was taken out
  • you offered the same type of loan under identical terms and conditions to the general public as well as to your employee (this exemption applies mainly to commercial lenders)

There are a number of additional circumstances in which loans are exempt from reporting and NICs requirements. These are outlined in chapter 17 of our publication ‘Expenses and benefits: a tax guide’ (480) – use the link below.

Download ‘Expenses and benefits: a tax guide’ (480) (PDF 4.27MB)

More about the official rate of interest (PDF 110K)

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Work out the value to report

You will need the following pieces of information to calculate the reportable value of a beneficial loan:

  • the date the loan was made available, if during the tax year
  • the date the loan was discharged, if during the tax year
  • the currency in which the loan was made
  • the number of complete months in the tax year throughout which the loan was owing
  • the maximum balance of the loan on the day the loan was taken out or the first day of the tax year, whichever is later
  • the maximum balance of the loan on the day the loan was discharged or the last day of the tax year, whichever is earlier
  • the official rate of interest – for a list, use the link at the end of this section
  • the amount of interest repaid by your employee during the tax year

The simplest way to calculate the reportable value of a beneficial loan is electronically rather than manually. If you input the information listed above into any of the following tools the reportable value will be calculated automatically for you:

  • the free ‘Online Return and Forms’ service on our website, which you can use to complete and file form P11D
  • the interactive form P11D (with save option) on our Employer CD-Rom
  • many commercial payroll software packages

You can also manually work out the figure to report. There’s a step-by-step guide to the process in P11D Working Sheet 4, which you can download using the link below.

Calculate the reportable value of a beneficial loan using P11D Working Sheet 4 (PDF 33K)

Our official rates of interest from 1995

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Where to report and what tax/NICs to pay

You must pay us Class 1A NICs on the cash equivalent value at the end of the tax year if you provide a beneficial loan to a company director or to an employee who earns at a rate of £8,500 or more per year. You must record the value in section H of form P11D.

You are not required to pay us anything or record the value on any forms if you provide a beneficial loan to an employee earning at a rate of less than £8,500 per year.

If you write off a loan to an employee

If you write off any loan (even those eligible for the exemptions outlined above in the section ‘What counts as a cheap employment-related loan?’), you must calculate and pay us Class 1 NICs on the full amount written off.

To do this, add the amount written off to the employee’s other earnings for the pay period in question when working out Class 1 NICs (but not PAYE (Pay As You Earn) tax) through your payroll using form P11.

No Class 1A NICs are due on loans that you write off, but they must be reported in section M of form P11D for company directors and for employees earning at a rate of £8,500 or more per year, or in section A(2) of form P9D for employees earning less than that.

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More useful links

An overview of how expenses and benefits work

The records you should keep of expenses and benefits you provide

Guidance on completing form P11D

Guidance on completing form P9D

Guidance on completing form P11

More detailed information about beneficial loans

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