Benefit in kind loan

M635

Hi,

Sorry if this is the wrong board.

I'm looking at taking a loan from my employer for £7000 at a preferential interest rate, my question is do I pay BIK on the whole 7k or just the 2k which is above the 5k tax free value.

I've looked online and cannot find the answer or a calculator to work this out.

Thanks

chesky

You might be better off posting your query in the 'cutting tax' section - there seems to be another question about BIK on there already.

jonesMUFCforever

You pay on the whole loan.
Normally you get taxed through your PAYE code when your employer advises HMRC of the loan.

iolanthe07

I had this with interest free car loans from my employer when I was working. Your tax code will go down a bit so your employer will deduct a little more tax. It didn't amount to very much, for me anyway. I paid about £50 per annum extra tax on an interest free £8,000 loan, IIRC.

jonesMUFCforever

The way it works is like this....

Say the HMRC official lending rate is 8%

You pay a staff rate of say 5%...

So on say a £8000 loan the official interest payable is £640(a) but you will have paid £400(b).

So you will be taxed by deducting b from a x 20% (if basic rate payer) ...in this case £48.

HMRC official rate of course bears no resemblance to real interest rates - sometimes it can be cheaper for you to go commercial rates eg if the commercial loan rate is say 7% you would pay no tax as no benefit in kind is offered.

leeroy2009

wish i had more payment in kind offers - not from employers and banks though.