The official rate of interest applying to beneficial loans to employees by reason of their employment is to remain unchanged at 6.25% for the 2001-02 tax year. This follows the approach set out in Inland Revenue press release of 25 January 2000, that the official rate will continue to be set in advance for the whole of the following tax year. This will help simplify record keeping and reporting requirements for employers.
1. Employees earning £8,500 a year or more (including the value of benefits in kind) and directors are taxable on benefits in kind received by reason of their employment.
2. If the benefit in kind is a loan repayable at a preferential rate of interest, tax is chargeable on the difference between the interest paid by the employee (if any) and the interest which would have been paid on the loan at the “official rate” of interest. The official rate for the current tax year (2000-01) is 6.25%.
If an employee receives a loan by reason of the employment and the interest payable is less than that which would be payable at the “official rate”, Section 160 Income and Corporation Taxes Act (ICTA) 1988 charges the benefit to income tax.
Schedule 7 ICTA 1988 defines the benefit as the difference between the amount of interest which would have been payable for the year on the loan at the official rate, less any interest actually paid on the loan for the year.