These are loans made by the company to directors and their families. If the loans are more than £10,000 then a benefit in kind arises at the beneficial loan rate of 2.5% for 2019/20. If the loans are less than £10,000, then no benefit is applied.
This is based on the average of the loan in the year, it is calculated as follows:
- Loan balance at the start of the year 6th April 2019 or (value when loan taken out in year) + loan at end of the year 5th April 2020 (or at point of repayment).
- Then divide by two as we are working out the average cost of the loan which is multiplied by 2.5%. This figure will be reported on your P11d form.
A director borrows £50,000 from his company on 6th April 2019. He repaid £20,000 of the loan during the year and at 5th April 2020, there was £30,000 remaining.
Calculate the average loan during the year £50,000 + £30,000 / 2 = £40,000 x2.5% ( beneficial loan rate). Therefore there is a £1000 benefit reported on the P11d form.