Loans to employees - changes to the law
When employers make loans to employees the employees are subject to an income tax charge if the interest charged on the loan by the employer is less than the official rate of interest. From 6 April 2014 the official rate of interest will be reduced from 4% to 3.25%.
Also from 6 April 2014 the size of the loans that may be made by employers to employees without attracting a tax charge will double to £10,000.
One of the reasons employers make loans to employees is to permit the employees to acquire shares in the employer, either directly or by way of a employee share scheme. Both the increase of the threshold to £10,000 and the reduction in the rate of interest charged could reduce the income tax payable by employees who receive 'cheap' loans from their employers. These changes will be especially welcomed by employees with nil paid share plans, however, they will also benefit other employees, including those who have season ticket loans where their season ticket costs in excess of £5,000.
If you require any additional information please contact Birketts’ Employment Tax and Incentives Team.