It is common for employers to grant modest loans to their employees to cover the upfront costs required to allow them to work. For example, a travel season ticket or childcare cost deposits. In other cases, the grant might be given to help with unexpected costs such as car repairs or gas bills.
How To Declare Employer Loans To Employees
As an employer, if you are planning to grant a loan, it is important to keep in mind that it must be appropriately documented, including clear repayment terms. You will not, however, be obliged to charge interest on the outstanding capital.
If the value of the loans you have granted to your employees does not exceed £10,000 in the tax year, there is no benefit in kind to declare. Grants with a larger total will have to be declared on the annual form P11D for the employee. The benefit is calculated as the interest the employee should have paid at the official rate (currently 2.5%).
In the instance that the loan is advanced to individuals connected with the company, such as directors or stakeholders, it must be declared on the company’s tax return. Tax will apply to any loan balance that is outstanding more than nine months after the end of the accounting period in which the loan was granted.
As always, we can help you to calculate any tax charges connected with loans provided to employees or directors, so please do not hesitate to contact us to book an appointment.