The interest-free or low interest loans provided by the employers to their employees are a taxable benefit on the employee if the relevant conditions are met. This document discusses these in detail, together with the situations when a loan benefit arises; methods of calculating of benefit; exemptions from the charge; reporting and National Insurance treatment; and loan repayment.

Points discussed within this guidance note:

> When does a loan give rise to a benefit?

An employer loan to an employee becomes taxable when it is provided by reason of employment. A beneficial loan is  any form of credit, not just a cash loan, and in certain circumstances a taxable benefit can still arise even if the loan is not made by an employer.

> How is the benefit calculated?

There are two methods of calculating the cash equivalent benefit of the loan - the normal method and the alternative method. This note explains how to calculate both. Either the employee or HMRC has the right to insist that the alternative method be used instead of the normal method.

> Normal method

> Alternative method

> Reporting and National Insurance treatment

> Repayment of the loan

> What happens if the loan is not repaid?

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