The official rate of interest on an employment related loan has been reduced to 4% (from 4.75%) with effect from 6 April 2010. The interest rate is used to calculate the benefit in kind where directors or employees earning more than £8,500 per year are provided with an interest free or low interest loan by reason of their employment.
The benefit in kind will be applicable where a loan is provided at an interest rate of less than 4%. In addition employers must also pay Class 1A national insurance premiums.
The statutory instrument which initiates this change came into force on 6 April 2010.