P11Ds for Loan Benefits: How it works

Making a cheap loan available to an employee can give rise to a taxable benefit in kind.  A P11D will be required for 2025/26 and 2026/27 after which most benefits will need to be payrolled.  Two important exceptions to this are living accommodation and loan benefits.

Currently, accommodation benefit or loans with interest charged at less than the official rate cannot be payrolled and must be reported on the P11D. HMRC have not stated that P11Ds are to be abolished and, therefore, the reporting position for beneficial loans and accommodation may not change.

There are some important exemptions to this charge.
 

P11D Beneficial or Cheap Loan Exemption

Firstly, if the loan, or total of all loans to the individual, is less than £10,000, and it is not provided under the optional remuneration (salary sacrifice) rules, then there is no benefit to report. Most season ticket loans will fall under this exemption. Equally, for larger loans not under the optional remuneration (OpRA) rules, there is no benefit if the employee pays interest on the loan at a rate that is higher or equals the ‘official rate’ of interest (see here for details).  Please note these rates can change mid-year.
 

Loans under OpRA

If a taxable cheap loan is made available under OpRA, and the amount of salary foregone by the employee is greater than the interest that would have been payable on the loan at the official rate of interest, the relevant amount to treat as earnings from the employment for the tax year is the amount of:

• Salary or cash pay foregone, less
• Any interest paid on the loan for the tax year.
• If the amount foregone is less than the interest payable at the official rate of interest, the normal rules apply.

 

Calculating the benefit

The cash equivalent is calculated for P11D purposes using the averaging method, as follows:

1. Determine the average loan by adding the balances at the start of the tax year 6 April and 5 April the following year (or the opening balance for new loans, or closing balance for repaid loans) and divide by two
2. For new or repaid loans, multiply the average loan by the number of complete income tax months during which the loan was outstanding and divide by 12
3. Multiply by the average official rate for the period of the loan
4. Deduct interest paid
5. Report the resulting cash equivalent.

 

However, either the employee or HMRC may elect for the alternative ‘precise’ method of calculating the benefit. This method is not used automatically for completing form P11D. The election covers all beneficial loans which an individual has outstanding at any time in the relevant year of assessment.