Director and employee loans are a standard feature in many small companies.
They are used to bridge gaps, cover work expenses or support cash-strapped staff.
However, once they creep past £10,000, they start attracting unwanted attention from HM Revenue & Customs (HMRC).
Loans above £10,000, regardless of when or why they were made, can become taxable benefits.
If those loans are interest-free or carry a rate lower than HMRC’s official rate (2.25 per cent for the 2024/25 tax year), they qualify as ‘beneficial loans’.
That status brings a host of reporting obligations.
Even loans that are paid back shortly after the year ends are still reportable. The repayment might remove the risk of a Corporation Tax charge, but it has no effect on the P11D reporting obligation, which is based entirely on loan usage during the tax year.
HMRC has started writing to companies whose accounts suggest they have issued loans to individuals breaching the £10,000 mark.
The letters do not accuse businesses of wrongdoing, but they are a clear hint that directors should review how those loans are being handled.
The rules do not only apply to loans made directly to employees or directors. Loans to a spouse, partner or even a child can create a taxable benefit.
Where companies are closely held, especially those with a sole director-shareholder, it is easy for these arrangements to fly under the radar, but HMRC is clearly watching.
Payrolling benefits can simplify tax for many items, but loans are not eligible.
So if a reportable loan exists, you’re stuck with the P11D system.
That means a full declaration by 6 July 2025 and the associated Class 1A National Insurance filed on form P11D(b).
To stay compliant, companies should be asking the following:
Sorting this out sooner means fewer problems later.
Contact our team today for assistance with your loan reporting obligations.
