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E4.640 Cheap loans—main rules

For the latest New Development, see ND.2822.

Where an employee, or a relative of the employee, has outstanding an 'employment-related loan' as outlined below, no tax or NIC will be due on the making of the loan itself (however this is subject to the 'disguised remuneration' rules taking precedence, as outlined further below). Instead a 'taxable cheap loan' is then treated as a benefit in kind, which is taxed as earnings from the employment¹. For NIC purposes, corresponding Class 1A NIC is due on the benefit (see E8.270).

For HMRC guidance, see EIM26100–EIM26520. For cases where the First-tier Tribunal upheld HMRC's interpretation of the legislation, see Boyle v HMRC² and Leeds Design Innovation Centre Ltd v HMRC³.

The amount to be treated as earnings is normally the cash equivalent (see E4.642, E4.643), though different rules apply where the loan is provided under optional remuneration arrangements (salary sacrifice) (see E4.644)⁴. An employment-related loan is a taxable cheap loan if the interest paid is less than the official