If you’re giving a loan to a director, you’ll need to arrange shareholder approval beforehand due to the Companies Act of 2006. It’s important to be careful when considering loans to the above two categories. As this is a nuanced and delicate legal subject, we recommend you consult a professional service for guidance to ensure your company does not get tripped up and caught out.īe careful when giving loans to directors and shareholders Whether a loan is exempt or not depends on a range of factors including the total amount of interest as compared to base rates of some banks. This applies to credit agreements like share plans as well as cash loans, so be careful! Even if your company doesn’t usually give out any kind of consumer credit, the CCA can still catch you if you make a loan to an employee. You’ll want to be aware of these before you consider charging interest.įirst and foremost, you’ll want to be mindful of the fact that some loans can fall under the CCA (the Consumer Credit Act of 1974). While it’s not illegal to charge interest on loans to your employees, it is an area of law with some nuance to it. Many businesses offer loans to employees with interest, whether as an alternative to a third-party joint loan or for other private reasons. If that sounds like your business, it’s best to seek advice and guidance on arranging a consumer credit licence.īe careful about charging your employees interest on your loan This is commonly done when share plans are being offered. The difficulty – and the potential for liability and legal trouble – lies in when these informal or occasional arrangements are scaled up to be offered to a larger pool of employees. The catch here? This isn’t needed if an employer provides loans to their employees on an occasional basis with regulated agreements. If that’s the case, you’ll need to have a credit licence arranged beforehand. This important distinction usually comes down to whether your company is offering credit to a customer or consumer under an agreement that’s regulated. You’ll also want to be careful of employer’s Class 1A national insurance contributions – these are payable too. This can be a realistic prospect for key staff and decision-makers who must travel globally each week. In these cases, they’re almost always offered interest-free, but there’s a catch a loan of over £10,000 must be taxable as a benefit in kind. It’s often the case that employers will give out loans to their staff for travel. Let’s take run through the key points on what employers should be mindful of when considering offering a loan. It’s important, however, to be aware of the pitfalls that a company can be snared by in the process. In many cases, it’s done with the honest and admirable intent of helping them through a tough time, or to support major life purchases like a first house. It’s not uncommon for companies to offer loans to their staff.
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