Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Special Class 1A NICs cases: Beneficial loans: Directors’ loan accounts: Overdrawn loan accounts: General


  • a director’s loan account is overdrawn; and
  • the overdrawn amount is a loan for any period in a tax year;and either

  • no interest is paid on the overdrawn amount for that year before any Class 1A NICs are due to be paid; or
  • the amount of the interest paid on it, for the tax year during which the loan account was overdrawn, is less than the interest that would have been payable at the official rate (see EIM26103 for guidance about the official rate)determine if there are general earnings chargeable to income tax under ITEPA 2003 (before 6 April 2003 – emoluments chargeable to income tax under Schedule E). For guidance about the income tax position on beneficial loans see EIM26100 (before 6 April 2003 – SE26100) and in particular EIM26505 (before 6 April 2003 – SE26505) about the interaction between employment income and other tax charges in respect of directors’ loan accounts.

If there are general earnings chargeable to income tax under the beneficial loan legislation in Chapter 7 of Part 3 of ITEPA 2003 (sections 173 to 191), and all the other conditions in NIM13021 are satisfied, Class 1A NICs are due on the amount of earnings chargeable to income tax.

For guidance about the method of calculating the amount of interest payable and how this may affect Class 1A NICs liability see NIM16680.

NIM16679 provides an example of an overdrawn loan account and explains the effect on the Class 1A NICs position.