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If an employee or director receives a loan from their employer, two potential tax liabilities are triggered: one for the employee and one for the employer. Whether these tax charges are chargeable depends on a number of issues.
Employees or directors
1. A tax charge will usually apply to interest free and low-interest loans provided to directors and to employees earning more than £8,500 per year by reason of their employment.
2. A benefit in kind charge will apply if interest charged by the employer is less than the official rate, currently 4%.
3. This benefit charge will not apply if the loan is less than £5,000.
4. Loans supplied for certain purposes are excluded from the charge.
The employer’s position
Company tax charge on outstanding loans to shareholders
There are three possible scenarios:
This additional tax can be recovered when the loan is repaid.
Disclaimer – Please note: The ideas shared with you in this article are intended to inform rather than advise. Taxpayers’ circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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