If the charity provides employees with loans that are interest free, or at a rate below HMRC’s official interest rate (an average rate of 3% for 2015/16), these will be classed as beneficial loans and a taxable benefit will arise. Any beneficial loans will need to be reported on the employees’ P11Ds and Class 1A NICs is due on the cash equivalent of the benefit.
However, if the aggregate of all loans to an employee during the 2016/17 tax year is below £10,000 then no tax or NICs will be due. The official interest rate changed in 2016 and HMRC has not yet published the average official rate for 2016/17 at the time of writing.
Expenses advances of over £1,000 are considered a beneficial loan. Additionally, under new NICs regulations (introduced on 6 April 2016) any expenses advances (even if under £1,000) will be deemed as NIC-able earnings, even if the expenses are subsequently incurred and fully receipted.
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