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As an employer providing loans to your employees or their relatives, you have certain National Insurance and reporting obligations.

What鈥檚 included

There are different rules for:

• providing 鈥榖eneficial loans鈥�, which are interest-free, or at a rate below HMRC鈥檚 official interest rate
• providing loans you write off
• charging a director鈥檚 personal bills to their loan account within the company

Beneficial loans

The rules cover beneficial loans advanced, arranged, facilitated, guaranteed or taken over from someone else by:

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

See the technical guidance for what to do in more complicated situations, eg if you use third-party arrangements to make a loan to your employee.

You might not have to report anything to HMRC or pay tax and National Insurance on some types of beneficial loans.

This includes loans you provide:

• in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
• with a combined outstanding value to an employee of less than 拢10,000 throughout the whole tax year (拢5,000 for 2013 to 2014)
• to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than HMRC鈥檚 official interest rate when the loan was taken out
• under identical terms and conditions to the general public as well (this mostly applies to commercial lenders)
• that are 鈥榪ualifying loans鈥�, meaning all of the interest qualifies for tax relief - see the technical guidance for an explanation of this complex area
• using a director鈥檚 loan account as long as it鈥檚 not overdrawn at any time during the tax year

Salary sacrifice arrangements

You do have to report loans to your employees or their relatives if they鈥檙e made as part of a salary sacrifice arrangement.

If the loans you provide aren鈥檛 exempt, you have to report the costs to HMRC, and deduct or pay National Insurance on them.

Beneficial loans

If you or your business provides a beneficial loan, as defined in the overview, you鈥檒l need to:

• report it on form P11D
• pay Class 1A National Insurance on the value of the benefit

Loans you write off

You always have to report and pay on loans to employees that you write off, whether or not they are classed as beneficial loans.

You must:

• report it on form P11D
• deduct and pay Class 1 National Insurance (but not PAYE tax) on the value of the benefit

You can work out the value of loans using HMRC鈥檚 PAYE Online or commercial payroll software.

You can also work out the value manually on P11D working sheet 4.

Salary sacrifice arrangements

If the cost of the loan is less than the amount of salary given up, report the salary amount instead.

These rules don鈥檛 apply to arrangements made before 6 April 2017 - check when the rules will change.

The following guides contain more detailed information:

• beneficial loan arrangements (chapter 17 of 鈥楨xpenses and benefits: a tax guide鈥�)