Sarah Bradford outlines the tax implications of making loans to employees and considers when they can be made free of tax.
As employees struggle to make ends meet, employers may lend a helping hand by giving an employee a cheap or interest-free loan. However, it is necessary to tread carefully as tax charges may arise on the associated benefit. Where a tax charge arises, there will also be a Class 1A National Insurance contributions charge on the employer.
The rules governing the tax treatment of employment-related loans are found in ITEPA 2003, Ch 3, Pt 7 (ss 173 to 191).
Scope
A tax charge will arise in respect of the benefit of an employment-related loan which is also a taxable cheap loan, unless the loan is an exempt loan.
An employment-related loan is a loan that is provided to an employee or a relative of an employee by the employee
