Beneficial loan calculator, 2026/27

How this is calculated

A beneficial loan benefit arises when a director or employee borrows from their company at below HMRC's official rate of interest, currently 3.8% for 2026/27. The benefit is the interest that would have been due at the official rate, less any interest actually paid, applied pro rata for the number of months the loan was outstanding.

Loans that total £10,000 or less throughout the tax year are ignored entirely, so many small director's loan account overdrawn positions never trigger this charge even though they still need repaying to avoid the separate section 455 corporation tax charge.

The benefit is reported on form P11D, and the company pays Class 1A National Insurance on it at the standard employer rate by 22 July following the end of the tax year. The director also pays income tax on the benefit through their Self Assessment return or PAYE coding.

Average versus actual balance

HMRC normally lets you use the average balance method, taking the loan balance at the start and end of the tax year and halving it, which usually gives a lower benefit than tracking the exact daily balance. HMRC can require the more precise strict method if it produces a materially different, usually higher, result.

Where the loan is only outstanding for part of the year, whether taken out or repaid mid-year, the benefit is time-apportioned for the number of complete months it existed, which is what the month input in this calculator reflects.

Reducing or avoiding the charge

Charging interest at or above the official rate removes the benefit entirely, though that interest is then taxable income for the company. Repaying the loan before the tax year end, or keeping the balance under the de minimis threshold, are the simplest ways directors avoid the charge in practice.

This benefit is separate from the section 455 tax the company pays if the loan is still outstanding nine months and one day after the year end; both need considering together when a director's loan account runs overdrawn.

What is HMRC's official rate of interest for 2026/27?

The official rate is 3.8% for 2026/27. It is set by HMRC and can be reviewed during the tax year, so check GOV.UK for any in-year changes before finalising a P11D.

Is there a threshold below which no benefit arises?

Yes. If the total outstanding balance of all loans to an employee or director never exceeds £10,000 at any point in the tax year, no beneficial loan benefit is charged at all.

Does the beneficial loan benefit replace the section 455 tax charge?

No, they are separate. The beneficial loan benefit is an income tax and NIC charge on the cheap interest. Section 455 is a corporation tax charge on the company if the loan is still outstanding nine months and one day after the year end.

Can I avoid the charge by charging myself interest?

Yes. If you pay interest to the company at or above the official rate, no taxable benefit arises. The interest received is then taxable income for the company, so there is no free lunch, but it avoids the personal benefit in kind charge.