Section H - Loans

General and background information

A benefit arises if the employer lends money to their employees and charges interest at less than The official interest rate

There are two main methods of calculation. Employers would normally use the averaging method unless requested by HMRC to use the alternative precise method:-

Normal averaging method

Step 1

  1. Find the maximum amount of the loan outstanding on:
    1. 5 April preceding the year of assessment, or
    2. If the loan was made during the year, the date on which it was made.
  2. Find the maximum amount of the loan outstanding on:
    1. 5 April within the year of assessment, or
    2. If the loan was repaid during the year, the date on which it was repaid.
  3. Add together the maximum amounts found at 1 and 2, and divide the result by two. This is the average loan.

Step 2

Calculate the average official rate of interest for the period covered in step 1. If the rate changed during the period of the loan:

  1. Multiply each official rate by the number of days when it was in force
  2. Add these figures together and
  3. Divide the result by the number of days in the period.

Step 3
Multiply the average loan (step 1) by the average official rate of interest (step 2) and multiply by the number of whole months (a tax month runs from 6th day of one month to the 5th day of the following month) for which the loan was outstanding in the year, then divide the result by twelve.

Alternative precise method of calculation
The normal averaging method works well for steadily decreasing loans over a period of time. However if there is a fluctuating loan (e.g. a director’s loan accounts where the loan balance can increase sharply part way through the year and is brought back down before the end of the year), HMRC or the employer can elect for the alternative precise method of calculation. In this circumstance the actual balance on each day is multiplied by the official interest rate in force on that day. This is the reason why you have to report the maximum balance of each loan on the P11D form.

Small loan exemption If the combined balance of all loans made available to an employee does not exceed £10,000 there is no need to report a benefit.

P11D Form: Section H

P11D Guide: Section H

Interest-free, low interest and notional loans

You do not have to report, loans used wholly for a qualifying purpose on a P11D.

Read appendix 5 of booklet 480 - an expenses and benefits guide for further information.

Enter the cash equivalent for each non-qualifying loan separately. If you’re a close company making loans to a director you may elect to treat all such loans which are in the same currency and which are owing at the same time as one loan. You make the election by showing the loans as a single loan on the form P11D. If you make any election the director will be bound by it.

Read chapter 17 of booklet 480 - an expenses and benefits guide for further information. 

Enter details of loans made to, or arranged for, a director or employee (their relatives) on which:

  • no interest was paid
  • the amount of interest paid was less than interest paid at the official rate

Read appendix 4 of booklet 480 - an expenses and benefits guide for the more information.

Confirm the currency used if it is not in sterling.

Only put an entry in the box for ‘Number of joint borrowers’ if there are any other joint borrowers that you are completing a P11D for, the (shared) benefit of the same loan. Enter the number of joint borrowers that have shared the total cash equivalent in the box. The total amount of the loan is not affected by the number of joint borrowers. In all cases show the full amount of the loan.

Include the annual ‘notional loan’ benefits under Section 446S Income Tax (Earnings and Pensions) Act 2003 for shares acquired by the director or employee at undervalue and partly paid shares.

Do not include Section 446U discharges of these notional loans. These need to be returned separately on employers return form 42.

For more information read:

If you know that the total amount outstanding on all loans, or all non-qualifying loans are £10,000 or less in 2023 to 2024, you should disregard them when completing section H of form P11D.

A loan made by a person other than the employer may in some cases fall within the rules of Part 7A ITEPA 2003 on employment income provided through third party arrangements and PAYE will apply to these amounts.

For up to date details of the official rate of interest (including average rate of interest for each tax year) read the Rates and allowances: beneficial loan arrangements guidance.

Additional HMRC Documentation and external help

HMRC P11D Guide
HMRC Booklet 480 (Chapter 6) 

HMRC Working sheet 4

HMRC Internal Manual - Employment income manual

For more details on data entry and importing, click on one of the links below: 

Section H - Importing
Section H - Entering Data Manually