Interest Free Loans from Employer

FredTheFifth

Hi All,

My employer can lend up to £10K for a car loan if one is required for you duties it is also declared as a benefit in kind and taxed.

Can anyone tell me how to compare it with a loan from a bank with a standard rate of interest please?

Thanks for any help.
FTF

sammy115

Taken from the Inland Revenue guide to expenses and benefits

http://www.hmrc.gov.uk/guidance/480.pdf

A director or employee obtains a benefit by reason of the employment when he or she, or any
of his or her relatives, is provided with a cheap or interest-free loan. The employee is generally
taxable on the difference between interest at the appropriate official rate and the interest, if any,
actually paid. Such loans are called beneficial loans.
17.2 It is not necessary for the loan to be advantageous to the recipient for a chargeable benefit to
arise. It is sufficient if the cheap or interest-free loan is made by reason of the employment.

sammy115

so for example if the 'official' rate of interest is 8% and you are paying 0% you will pay 20% on the 8% you would have paid, unless you are higher rate tax payer then it would be 40%

iolanthe07

I have an interest free loan from my employer for car purchase, and though I have to pay tax at 20% on the notional commercial interest rate I'm still quids in. I suppose it might be different if you are a 40% tax payer.