Official rate of interest
The official rate of interest on an employment related loan is to remain at 3.25% for the next quarter beginning 6 October 2014. The 3.25% rate applies from 6 April 2014, the first time the rate had changed since April 2010. A change in the rate is only made during the year if there are significant movements in interest rates.
The interest rate is used to calculate the benefit in kind when directors or employees, earning more than £8,500 per year, are provided with an interest free or low interest loan by reason of their employment.
A benefit in kind will apply when a loan is provided at an interest rate of less than 3.25%. In addition, employers must pay Class 1A National Insurance Contributions.