£40,000 Employer Loan BIK Tax
£25,000 salary · 2.25% official rate · England & Wales · 2025-26
Beneficial loan BIK breakdown
| Loan amount | £40,000 |
| HMRC official rate 2025-26 | 2.25% |
| BIK value (loan × 2.25%) | £900/year |
| Your salary | £25,000 |
| Income Tax on loan BIK | £180/year |
| National Insurance on loan BIK | £72/year |
| Total annual tax cost | £252/year |
| Monthly tax cost | £21/month |
| Effective interest rate (tax) | 0.63% of loan |
Frequently asked questions
How much tax do I pay on a £40,000 interest-free employer loan on a £25,000 salary?
A £40,000 interest-free loan creates a BIK of £900/year (£40,000 × 2.25% official rate). On a £25,000 salary, the additional Income Tax is £180 and NI is £72 — total £252/year (£21/month). The effective interest rate you pay in tax is 0.63%.
What is the HMRC official rate for 2025-26?
The HMRC official interest rate (used to calculate beneficial loan BIK) is 2.25% for 2025-26. This rate is set by HMRC and changes periodically. The BIK value is the interest you would have paid at 2.25% minus any interest you actually pay. If you pay 0% interest, the full 2.25% × loan amount is the BIK.
Are all employer loans taxable?
No — loans totalling £10,000 or less across all beneficial loans from your employer are completely exempt from BIK. The £40,000 loan in this example is above the £10,000 de minimis threshold, so the full BIK of £900/year applies. Season ticket loans, cycle-to-work loans, and other qualifying loans below £10,000 are always tax-free.
How is the employer loan BIK collected?
HMRC reduces your personal allowance by the BIK value (£900), increasing PAYE deductions each month. Your employer reports the BIK on a P11D (or via payrolled benefits) after the tax year ends in April. Some employers payroll the benefit in real time — ask your payroll team which method applies.
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