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 since 6 April 2017 is 2.5%, 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.