The Official Rate of Interest (ORI) from 6th April 2025
Where you provide loans to employees that exceed £10,000 during a tax year. If so then the individual has been provided with a benefit in kind (BIK) which is required to be reported on form P11D. Payrolling is planned to become an option for employers from 6th April 2026 (subject to further confirmation).
The Official Rate of Interest (ORI) increase from the current 2.25% to 3.75% on 6th April 2025.
The ORI is used to calculate the Income Tax charge on the benefit of employment-related loans and the taxable benefit of some employment related living accommodation.
As announced at Autumn Budget 2024, the ORI may increase, decrease or be maintained following quarterly reviews. If there are any changes to the rate, these will take effect on 6th April, 6th July, 6th October and 6th January.
Any future changes to the official rate will be published on GOV.UK.
Further information on the Autumn Budget 2024 Overview of tax legislation and rates is available.
Supporting employers
If you assist employers with their reporting duties to HMRC where they provide employment related loans or living accommodation to their employees, you will need to know the correct ORI to apply when you calculate the value of any benefit for 2025 to 2026. Additionally, the new rate means employees might have to pay tax on employment related loans or living accommodation where they may not have previously.
You will also need to remain aware of any future changes in the rate during the tax year. As of 6 April 2025, the rate may increase in-year which will impact the taxable value of the benefits the employer provides.
What is a beneficial loan?
As an employer providing loans to your employees or their relatives, you have certain National Insurance and reporting obligations.
There are different rules for:
- providing ‘beneficial loans’, which are interest-free, or at a rate below the official interest rate
- providing loans you write off
- charging a director’s personal bills to their loan account within the company
What’s exempt
You might not have to report anything to HMRC or pay tax and National Insurance on some types of beneficial loans.
This includes loans:
- in the normal course of a domestic or family relationship as an individual (not as a company you control, even if you are the sole owner and employee)
- with a combined outstanding value to an employee of less than £10,000 throughout the whole tax year
- to an employee for a fixed and invariable period, and at a fixed and invariable rate that was equal to or higher than official interest rate when the loan was taken out
- under identical terms and conditions to the general public as well (this mostly applies to commercial lenders)
- that are ‘qualifying loans’, meaning all of the interest qualifies for tax relief
- using a director’s loan account as long as it’s not overdrawn at any time during the tax year
Beneficial loans
Where there is a beneficial loan:
- report it on form P11D
- pay Class 1A National Insurance on the value of the benefit
Writing off a loan
Always report and pay on loans to employees that are written-off, whether or not they are classed as beneficial loans:
- report on form P11D
- deduct and pay Class 1 National Insurance (but not PAYE-tax) on the value of the benefit
PAYadvice.UK 28/3/2025