Do you need to report that loan? The £10,000 rule and P11D implications

Many businesses routinely offer financial support to their directors or employees in the form of loans.

These may be intended as temporary assistance or advances to cover business expenses.

However, when the value of a loan exceeds a certain threshold, the consequences for reporting and tax compliance become more complex.

Hm Revenue & Customs (HMRC) has recently issued letters to companies whose financial statements show loans of over £10,000 to individual directors or employees.

These letters are intended as reminders rather than compliance checks, encouraging employers to review whether they need to report these loans as benefits in kind using form P11D for the 2024/25 tax year.

When does a loan become a reportable benefit?

The reporting requirement hinges on two key conditions:

• The total value of the loan exceeds £10,000 at any point during the tax year
• The interest charged on the loan is below HMRC’s official rate (2.25 per cent for 2024/25), or no interest is charged at all

Once both of these conditions are met, the loan is classified as a beneficial loan, which gives rise to a taxable benefit for the employee or director. This benefit must be reported on form P11D.

The benefit arises even if the loan is repaid within nine months of the end of the accounting period.

While that repayment may remove the need for a Corporation Tax charge on the company, it does not change the P11D position.

The benefit is assessed based on use of the loan during the tax year, not on its repayment after year end.

This distinction frequently causes confusion.

Loan scenarios that require extra attention

The rules apply not only to direct loans made to directors and employees, but also to loans made to their relatives.

Family members benefiting from favourable loan terms may trigger a reporting requirement for the employer.

For smaller companies, particularly those where the director and shareholder are the same person, the boundaries between personal and business funds can be blurred.

These are precisely the scenarios where HMRC is encouraging businesses to take a closer look.

Can the benefit be payrolled?

At present, loans cannot be included in the payrolling of benefits scheme.

This means there is no option to deal with the tax monthly through payroll software.

All reportable loans must be recorded on form P11D at the end of the tax year, and the related Class 1A National Insurance must be declared on form P11D(b) by 6 July 2025.

What should businesses do now?

If your company has made any loans exceeding £10,000 to directors, employees or their family members during the 2024/25 tax year, it is important to assess:

• The total amount outstanding at any point in the year
• Whether interest was charged, and if so, at what rate
• Whether the benefit needs to be calculated and reported on form P11D

This review should be completed well in advance of the filing deadline to avoid rushed submissions.

Ensure your reporting obligations are accurate well ahead of the 6 July deadline.

If you are unsure whether a loan is reportable or how to calculate the benefit, speak to our team of accountants today.