NIM16671 - Class 1A National Insurance contributions: special Class 1A NICs cases: beneficial loans: general

An employee can obtain a benefit by reason of his or her employment when provided with a cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the “Official Rate of interest” which is used as a measure of the commercial rate the employee would have to pay on a loan obtained elsewhere. Such loans are called beneficial loans.

There are special rules relating to the taxation of these benefits. The relevant guidance is in EIM26100 onwards.

If:

  • there is an amount of general earnings taxable under the beneficial loans legislation (Chapter 7 of Part 3 of ITEPA 2003); and
  • all the conditions in NIM13021 are satisfied

then Class 1A NICs liability arises on the amount of general earnings chargeable to income tax.

For guidance about:

  • directors’ loan accounts see NIM16675
  • the method of calculating the amount of interest due see NIM16680.