Exemption threshold for employment-related loans

Where an employer provides an employee with a cheap or interest free loan they have to report notional interest on the loan at 4% per annum on the form P11D. Where the balance of the loan is no more than £5,000 throughout the tax year no benefit is reportable.

The exemption applies if the total balance, at any point in the tax year, does not exceed the limit of £5,000 and includes the total of low cost, or interest free, loans or notional loans arising from the provision of employment-related securities.

From 6 April 2014 where the total outstanding balances on all such loans do not exceed £10,000 at any time in the tax year there will not be a tax charge and employers will no longer be required to report the benefit to HMRC.

The Chancellor said in his statement ‘we are going to double to £10,000 the size of the loans that employers can offer tax free to pay for items such as season tickets for commuters’.