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HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Special Class 1A NICs cases: Beneficial loans: General

An employee can obtain a benefit by reason of his or her employment when provided with a cheap or interest-free loan. The benefit is the difference between the interest the employee pays, if any, and the “Official Rate of interest” which is used as a measure of the commercial rate the employee would have to pay on a loan obtained elsewhere. Such loans are called beneficial loans.

There are special rules relating to the taxation of these benefits. The relevant guidance is inEIM26100 onwards (before 6 April 2003 – SE26100 onwards).


  • there is an amount of general earnings taxable under the beneficial loans legislation, i.e. Chapter 7 of Part 3 of ITEPA 2003; and
  • all the conditions in NIM13021 are satisfiedClass 1A NICs liability arises on the amount of general earnings chargeable to income tax (before 6 April 2003 – emoluments chargeable to income tax under Schedule E).

For guidance about

  • directors’ loan accounts see NIM16675
  • the method of calculating the amount of interest due see NIM16680.