Election to aggregate employer loans

Normally, where a company has made a number of loans to a director the taxable benefit for each must be calculated separately. However, an election can be made to aggregate them.

cheap rate or zero interest loans

Where you lend money on which you pay no interest, or interest below HMRC’s official rate, it counts as a taxable benefit in kind. Because the official rate is low the resulting tax bill is usually relatively modest, but in some situations it can be disproportionately costly.

The legislation requires that you work out the taxable benefit in kind for different loans separately. However, you can elect to aggregate them. This simplifies the calculation of the taxable benefit and can affect the amount of taxable benefit where one or more of the loans started or ended during the tax year.

Conditions

Loans are aggregable if they are made in the same currency and all the following conditions are met for each loan:

• at some point in the tax year for which the election is being made
  • the lender is a close company; and
  • the borrower is a director of that company
• throughout the tax year the rate of interest due on the loan is less than HMRC’s official rate
• the loan is not a qualifying loan, i.e. the director employee would not be entitled to tax relief for interest on the loan, if any is payable.

procedure and timing

You must make the election by the deadline for reporting the P11D benefit, i.e. by 6 July following the end of the tax year.