P11D tips – Loan benefits
P11D tips – Loan benefits
Published by: Michael Hepburn, Senior Manager – Employment Tax
HMRC issued guidance in January 2024 that, from April 2026, there will be a requirement for all employers to payroll benefits in kind (BIKs) on a mandatory basis rather than voluntarily as is currently the practice. Read our full article here.
However, there is still a requirement to complete form P11D for 2023/24 for any non-payrolled benefits. Making a cheap loan available to an employee can give rise to a taxable benefit in kind, but there are some important exemptions.
Currently accommodation benefit or loans with interest charged at less than the official rate cannot be payrolled and must be reported on the P11D. HMRC have not stated that P11Ds are to be abolished and, therefore, the reporting position for beneficial loans and accommodation may not change.
Exemptions
Firstly, if the loan, or total of all loans to the individual, is less than £10,000, (eg most season ticket loans) and it is not provided under the optional remuneration (salary sacrifice) rules, then there is no benefit to report. Equally, for larger loans not under the optional remuneration (OpRA) rules, there is no benefit if the employee pays interest on the loan at a rate that is higher or equals the ‘official rate’ of interest (2.25% for 2023/24).
Loans under OpRA
Where a taxable cheap loan is made available under OpRA and the amount of salary foregone by the employee is greater than the interest that would have been payable on the loan at the official rate of interest, the relevant amount to treat as earnings from the employment for the tax year is the amount of:
- Salary or cash pay foregone, less
- Any interest paid on the loan for the tax year.
If the amount foregone is less than the interest payable at the official rate of interest, the normal rules apply.
Calculating the benefit
The cash equivalent is calculated for P11D purposes using the averaging method, as follows:
- Determine the average loan by adding the balances at 6 April 2023 and 5 April 2024 (or the opening balance for new loans, or closing balance for repaid loans) and divide by two
- For new or repaid loans, multiply the average loan by the number of complete income tax months during which the loan was outstanding and divide by 12
- Multiply by the average official rate for the period of the loan (2.25% for most loans)
- Deduct interest paid
- Report the resulting cash equivalent.
However, either the employee or HMRC may elect for the alternative ‘precise’ method of calculating the benefit. This method is not used automatically for completing form P11D. The election covers all beneficial loans which an individual has outstanding at any time in the relevant year of assessment
P11D software
P11D software from BDO has an outstanding reputation for flexibility and ease of use - read more on our P11D software.
If you found this article helpful, you can find more guidance on completing P11Ds here – or get in touch to talk to one of our team.
