Where an employer provides a loan to an employee or director, and that employee / director does not pay the official HMRC rate of interest on the loan (4% for 13/14, reducing to 3.25% for 14/15), the loan is considered a beneficial loan.
This can have implications for both the employee and the employer, as, subject to the amount of the loan, it may become a reportable item on a P11D and so get treated as a taxable benefit in kind. The employee ends up paying income tax on the value of the interest unpaid, and the employer pays Class 1 NICs on the same value.
However, from 6th April 2014, the exemption threshold for employer-related loans to be treated as earnings has been increased from £5,000 to £10,000. This means that as long as the loan does not exceed that threshold at any point during the tax year, there are no P11D implications. The increased threshold applies to all loans, no matter when they were taken out. So whereas in previous years there may have been a P11D charge on a particular loan, this may not still be the case going forward.
Beware! Where a loan is made to a director of a close company, the implications on corporation tax when the loan remains unpaid 9 months after the company’s year-end date remain unchanged.