Beneficial loan calculator and guide: tax on cheap or interest-free loans from your employer

Updated for the 2026/27 tax year · Checked 13 November 2026 By the Rodway Labs editorial team · Editorial policy

Updated 13 November 2026 · Tax year 2026/27

Scope: income tax on loans from an employer that are interest-free or below HMRC's official rate, 2026/27. Part of the benefits in kind guide.

Many employers offer interest-free loans for season tickets, bikes, tech or emergencies, and some let staff borrow larger sums. If a loan from your employer charges no interest, or less than HMRC's official rate of interest, the interest you save is a beneficial loan benefit in kind. Small loans are exempt, but once the total you owe goes over £10,000, the saving is taxed like extra pay.

This guide explains the 2026/27 rules, the £10,000 exemption, how the benefit is worked out and what happens if your employer writes a loan off. Tax figures use the income tax bands in the js/tax.js engine behind the Take-Home Lab calculator. It is general information, not tax or lending advice.

The official rate for 2026/27

HMRC's actual official rate of interest is 3.75% from 6 April 2026, the same as in 2025/26 (it was 2.25% in 2024/25). Since 6 April 2025 HMRC no longer promises to hold the rate for the whole tax year: it may go up or down during the year. If it changes, HMRC publishes an average official rate for the year after it ends, and that average is used in the normal calculation. The examples below use 3.75% for the whole year.

The £10,000 exemption

There is no taxable benefit if the total balance of all your beneficial loans from your employer does not exceed £10,000 at any point in the tax year. The test is the combined balance, not each loan separately, and it applies throughout the year: if your balance goes over £10,000 on even one day, the exemption is lost for that year and the whole loan is taxable, not just the excess.

That is why most season ticket and cycle loans are tax-free: an £8,000 annual season ticket loan is below the limit for the whole year. Two loans of £6,000 at the same time would total £12,000 and be taxable.

Other loans that are exempt

• Loans made in the normal course of a domestic or family relationship by an individual employer (not a company they control).
• Loans for a fixed period at a fixed rate that was at or above the official rate when the loan was made.
• Loans made on the same terms to members of the public, mostly by commercial lenders to their own staff.
• "Qualifying loans", where all the interest would qualify for tax relief.
• A director's loan account that is never overdrawn during the tax year.

The £10,000 exemption does not apply if the loan is provided through a salary sacrifice arrangement, where you give up salary in return for it.

How the benefit is worked out

The taxable value is the interest you would have paid at the official rate, minus any interest you actually paid for the year. Employers normally use the averaging method:

1. Take the balance at the start of the tax year (or when the loan was made) and the balance at the end (or when it was repaid).
2. Add them together and divide by 2 to get the average balance.
3. Adjust for the number of whole months the loan existed in the year, if it was not outstanding all year (tax months start on the 6th).
4. Multiply by the official rate, then subtract the interest you paid.

You or HMRC can instead choose the alternative precise method, which applies the daily official rate to the balance on each day. It can give a different answer when a balance moves around a lot during the year. You can elect for it up to 31 January in the next tax year but one.

Worked examples for 2026/27

Assumptions: 2026/27 · official rate 3.75% all year · normal averaging method · standard £12,570 personal allowance · no other benefits.

Example 1: a £15,000 interest-free loan all year

The balance is £15,000 on 6 April 2026 and still £15,000 on 5 April 2027. Average balance £15,000 × 3.75% = a benefit of £562.50.

• Tax at 20% on a £35,000 salary: £112.50 a year (£9.38 a month)
• Tax at 40% on a £60,000 salary: £225.00 a year (£18.75 a month)
• Tax at the Scottish 21% and 42% rates: £118.13 and £236.25
• Your employer's Class 1A National Insurance at 15%: £84.38

Compare that with a bank loan: at 6% interest, £15,000 would cost about £900 a year in interest. Paying £112.50 or £225 of tax on the benefit is still far cheaper for most people.

Example 2: a loan that is paid down below £10,000

You owe £12,000 interest-free at the start of the year and repay £500 a month, so you owe £6,000 at the end. Because the balance was over £10,000 at the start of the year, the exemption does not apply. Average balance (£12,000 + £6,000) ÷ 2 = £9,000 × 3.75% = £337.50, which is £67.50 of tax at 20% or £135.00 at 40%. Next year, when the balance stays below £10,000 all year, there is no charge.

Example 3: a loan at a low interest rate

You borrow £30,000 at 1% and repay £6,000 during the year, so the balance falls from £30,000 to £24,000. Average balance £27,000 × 3.75% = £1,012.50. You paid £270 of interest, so the benefit is £1,012.50 − £270 = £742.50: £148.50 of tax at 20% or £297.00 at 40%.

If your employer writes off a loan

If your employer releases or writes off a loan made because of your job, the amount written off is taxed as earnings, whether or not the loan was a beneficial loan and whatever its size. Unlike most benefits, it also attracts employee Class 1 National Insurance, which your employer deducts through payroll; the income tax is collected after the employer reports it on form P11D.

For example, a £5,000 write-off on a £35,000 salary means £1,000.00 of income tax (20%) and £400.00 of employee National Insurance (8%). On £60,000 it is £2,000.00 of tax (40%) and £100.00 of National Insurance (2%). Loans written off when you leave a job are a common trap: check the terms before you resign.

Directors' loan accounts

If you are a director and your loan account with your company is overdrawn, the same beneficial loan rules apply to you as an employee. An overdrawn balance of more than £10,000 at any point in the year, charged at less than the official rate, is a taxable benefit worked out as above. Separate company tax rules on loans to participators may also apply; this site does not cover company tax.

How it is reported and collected

A taxable beneficial loan is reported on form P11D after the tax year ends, and your employer pays Class 1A National Insurance on the benefit. Your tax is usually collected through your tax code: a £562.50 benefit would reduce your allowance from £12,570 to £12,007.50, giving a 1200L code. Employer loans are not part of HMRC's planned mandatory payrolling from April 2027 and 2028; they can still be payrolled voluntarily.

Using the two calculators together

The calculator at the top of this page works out the taxable benefit and the extra income tax on your loan. The main take-home calculator does not include benefits in kind or loan repayments taken from your pay, so subtract the tax from its result. Do not add the benefit to your salary in the main calculator, because that would also charge National Insurance and student loan on it.

Check your salary in the calculator

Sources (checked 13 November 2026): HMRC beneficial loan arrangements: HMRC official rates (3.75% from 6 April 2026); HMRC EIM26104: amount of the official rate; HMRC 480 chapter 17: beneficial loan arrangements (£10,000 exemption, averaging and precise methods, write-offs); GOV.UK expenses and benefits: loans provided to employees; HMRC rates and thresholds for employers 2026 to 2027 (Class 1A 15%). Tax examples from the Take-Home Lab calculator engine for 2026/27. Illustrative only — not tax or lending advice. Rodway Labs · hello@takehomelab.co.uk.