Staff loans: beneficial loan rules and the £10,000 limit

You can lend an employee up to £10,000 interest-free with no tax or National Insurance to pay, as long as the total they owe you stays at or below £10,000 throughout the tax year. If the balance goes over £10,000 at any point, the whole loan becomes a taxable benefit in kind, worked out at HMRC’s official rate of interest, which is 3.75% from 6 April 2026. A loan you write off is always taxable, whatever its size.

What is a beneficial loan?

A beneficial loan is a loan to an employee, or a relative of theirs, that is interest-free or charges less than HMRC’s official rate. It covers loans you make, arrange, guarantee or take over, according to HMRC’s guidance on loans to employees. Common examples are season ticket loans, rent deposit loans, loans for a car or bike, and an overdrawn director’s loan account.

How does the £10,000 limit work?

The loan is exempt if the amount outstanding does not exceed £10,000 at all times in the tax year. That is the test in section 180 of the Income Tax (Earnings and Pensions) Act 2003. All of an employee’s cheap loans from you are added together.

The limit is a cliff edge, not an allowance. If the balance reaches £10,001 for one day, the benefit is worked out on the whole loan, not just the excess.

What else is exempt?

HMRC lists these exemptions:

• loans made in a normal domestic or family relationship, as an individual (not through a company you control)
• loans on the same terms you offer the general public, which mostly applies to commercial lenders
• fixed-term loans at a fixed rate at or above the official rate when the loan was made
• qualifying loans, where all the interest would qualify for tax relief
• a director’s loan account that is never overdrawn during the tax year

Loans made under salary sacrifice are not exempt, even below £10,000.

How is the taxable benefit calculated?

The benefit is interest at the official rate, less any interest the employee actually pays. HMRC sets the rate in its official rates table.

There are two methods, explained in EIM26200:

• Normal averaging method. Take the average of the balance at the start and end of the tax year (or on the dates the loan was made or repaid). This applies automatically.
• Alternative precise method. Use the balance outstanding each day. The employee can elect for it, or HMRC can require it, usually where the balance swings during the year.

Worked example for 2026/27

An employer lends an employee £15,000 interest-free on 6 April 2026. The employee repays £6,000 during the year, so £9,000 is outstanding on 5 April 2027.

1. Average balance: (£15,000 + £9,000) ÷ 2 = £12,000.
2. Benefit: £12,000 × 3.75% = £450.
3. Employee tax: £90 for a basic rate taxpayer (20%), £180 for a higher rate taxpayer (40%).
4. Employer Class 1A National Insurance: £450 × 15% = £67.50.

The loan fell below £10,000 by the year end, but it was over the limit for part of the year, so the benefit still applies. If the employee had paid 2% interest, the benefit would be reduced by the interest paid.

What happens if you write off a staff loan?

Writing off or releasing a loan is always taxable, whether or not the loan was beneficial and whatever the amount. The amount written off is treated as earnings. You report it on the P11D and deduct Class 1 National Insurance through payroll, but not PAYE tax; the employee pays the income tax through their tax code or Self Assessment.

How do you report and pay?

Report a beneficial loan on form P11D and pay Class 1A National Insurance on the benefit. The deadlines are:

A late P11D(b) costs £100 per 50 employees for each month or part month. Budget 2026 makes most benefits payrollable from April 2027 or 2028, but employer loans are excluded for now; see payrolling benefits in kind. Our P11D guide covers the form.

Which rules apply to you?

• If total loans to the employee stay at or below £10,000 all year: nothing to report or pay.
• If the balance goes over £10,000 at any time: report the benefit on the whole loan and pay Class 1A.
• If you charge interest at or above 3.75%: no benefit arises, but keep the loan agreement.
• If you are a director borrowing from your own company: the beneficial loan rules apply alongside the section 455 charge; see director’s loan account and close company rules.
• If you write the loan off: it is taxable earnings with Class 1 National Insurance.

What employers should do

1. Write a short loan agreement setting out the amount, repayments and any interest.
2. Track each employee’s total loan balance, not just individual loans.
3. Plan repayments so balances near £10,000 never go over, even briefly.
4. Diarise the 6 July and 22 July deadlines.

For other perks that are tax-free, see tax-free employee benefits.

Frequently asked questions

Can I lend an employee £10,000 interest-free?

Yes. A loan that does not exceed £10,000 at any point in the tax year is exempt, so there is no tax, National Insurance or P11D entry.

What is HMRC’s official rate of interest for 2026/27?

3.75% from 6 April 2026, according to HMRC’s table of beneficial loan official rates, updated 6 March 2026.

Is the benefit only on the amount over £10,000?

No. Once the limit is exceeded, the benefit is calculated on the whole outstanding balance.

Do season ticket loans count?

Yes. A season ticket loan is a beneficial loan if it is interest-free, so it is only exempt while total loans to that employee stay at or below £10,000.

Is a written-off loan taxable if it was under £10,000?

Yes. HMRC says you always have to report and pay on loans you write off, whatever their size.