Officially holding steady

HMRC’s official rate of interest remains at 2.5% for 2019/20. This rate is used to calculate taxable benefits for beneficial loans and expensive living accommodation provided to employees.

Beneficial loans

Employers often provide loans to employees to buy a season travel ticket or even a car.
There is no taxable benefit on an employee if the value of loans provided to them does not exceed £10,000 at any point during the tax year. However, the exemption will not apply if they go over this limit by even a few pounds. The taxable benefit is then measured as the difference between the amount of interest at the official rate and any interest the employee has actually paid.

For example, Jane’s employer made her an interest-free loan of £20,000 to buy a car on 6 April 2019 and she repaid £5,000 during 2019/20. The average amount of loan outstanding throughout 2019/20 was £17,500, so Jane’s taxable benefit is £438 (£17,500 at 2.5%).

Living accommodation

The official rate of interest comes into play for employer-provided living accommodation if the cost exceeds £75,000. The official rate is then used to calculate the additional benefit by applying it to the excess of the cost over the £75,000 threshold. The original benefit is instead based on the property’s annual value.