From April 2021 HMRC’s Official Interest rate has been cut from 2.5% to 2%. As a result of the cut the tax payable by a higher rate taxpayer with an employer-provided interest-free loan will reduce. This is also the case for director loans taken from companies. Where an employer-provided loan is cheap rather than interest-free, the benefit charge is based on the difference between the official rate and the amount of interest actually paid.
No benefit arises if:
The balance of beneficial loans provided to a director or employee throughout 2021/22 does not exceed £10,000.
The loan is for a qualifying purpose, such as buying shares in a close company.
Directors should be particularly careful to not let an overdrawn current account go just over £10,000 at any point during the tax year.