Introduction to this document

Employee loan agreement

To avoid a payment to an employee/director being treated (and taxed) as additional salary, you could reclassify it as a fixed-rate loan. What documentation will HMRC need to be convinced about this?

Inexpensive finance

The income tax paid by a director or employee on a subsidised loan provided by their employer is based on the difference between the interest rate actually charged and what is known as the “official rate”. The official rate is subject to review in the event of significant changes.

It’s important to keep a copy of the Employee Loan Agreement, setting out the terms of the loan and any interest that the employee has to pay.