Employers providing their employees with low-interest or interest-free loans, or access to living accommodation will see a rise in the taxable value of these benefits in kind from April 2025.
The benefit in kind value of employer-provided loans or living accommodation is calculated based on the HMRC Official Rate of Interest (ORI). With effect from 6 April 2025, the ORI increased from 2.25% to 3.75% - its most significant jump in over thirty years.
All else being equal, employers providing these benefits are likely to see an increase in their Class 1A National Insurance Contributions (NIC) due for the 2025/26 tax year. This is especially true as the Class 1A NIC rate which applies to taxable benefits has also gone up – from 13.8% in 2024/25 to 15% from April 2025. So a higher NIC rate will apply to a higher benefit in kind value than was the case in the previous tax year.
Employees in receipt of either benefit in kind will also have more tax to pay for the current tax year because the taxable value of these benefits will rise as a result of the increase in the ORI.
In view of the higher costs of providing beneficial loans and living accommodation from April 2025, employers may need to ensure the benefits in kind they choose to offer to staff remain appropriate.
Equally, employees in receipt of either benefit may wish to review their options in view of the increased tax cost of having a beneficial loan from their employer, or making use of employer-provided living accommodation.
Watch out for mid-year rate changes
As covered in January’s Employer Focus, it is now possible for the ORI to change during each tax year. Any mid-year increase or decrease in the rate would apply from 6 July, 6 October or 6 January.
If the ORI changes during a tax year, the calculations prepared by employers providing beneficial loans or living accommodation to their staff will become more complicated.
For instance, if the ORI were to change with effect from 6 October 2025, an employer offering beneficial loans to staff would need to calculate the taxable benefit arising over the period 6 April to 5 October 2025 at one ORI, and combine this with the benefit calculated from 6 October 2025 to 5 April 2026 based on the new ORI.
The Government publishes the current Official Rate of Interest. Employers will need to keep an eye on that page when calculating benefit in kind values for employees with beneficial loans or employer-provided living accommodation.
This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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