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The official rate of interest applying to beneficial loans
to employees by reason of their employment is to remain unchanged
at 6.25% for the 2001-02 tax year.
This follows the approach, set out in Inland Revenue announcement
of 25 January 2000, that the official rate will continue to
be set in advance for the whole of the following tax year.
'This will help simplify record keeping and reporting requirements
for employers.' (How kind!!!)
Details:
1. Employees earning £8,500 a year or more (including
the value of benefits in kind) and directors are taxable on
benefits in kind received by reason of their employment.
2. If the benefit in kind is a loan repayable at a preferential
rate of interest, tax is chargeable on the difference between
the interest paid by the employee (if any) and the interest
which would have been paid on the loan at the "official rate"
of interest. The official rate for the current tax year (2000-01)
is 6.25%.
Background Information & Further Details:
1. If an employee receives a loan by reason of the employment
and the interest payable is less than that which would be payable
at the "official rate", Section 160 Income and Corporation Taxes
Act (ICTA) 1988 charges the benefit to income tax.
2. Schedule 7 ICTA 1988 defines the benefit as the difference
between the amount of interest which would have been payable
for the year on the loan at the official rate, less any interest
actually paid on the loan for the year.
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