Last updated: 16 October 2026
What is the official rate of interest?
The official rate of interest (ORI) is set by HMRC and used to work out the taxable benefit when an employer lends money to an employee or director at a low rate or interest-free. It is 3.75% from 6 April 2026, the same as in 2025/26.
What changed after 25 years
In January 2000, the government promised it would not raise the official rate during a tax year. That commitment ended on 6 April 2025. HMRC can now increase, reduce or keep the rate at any point in the year, in line with market interest rates. Employers and directors with loans should check the rate regularly rather than assume it is fixed for the year.
Recent official rates
| Tax year | Official rate |
| 2023/24 | 2.25% |
| 2024/25 | 2.25% |
| 2025/26 | 3.75% |
| 2026/27 | 3.75% (from 6 April 2026) |
When is a loan a taxable benefit?
A beneficial loan arises when an employee or director owes their employer more than £10,000 at any time in the tax year and pays less interest than the official rate. The benefit is the difference between interest at the official rate and the interest actually paid. If the total balance stays at £10,000 or less throughout the year, there is no benefit.
Worked example
A director borrows £30,000 interest-free from her company for the whole of 2026/27.
- Benefit: £30,000 x 3.75% = £1,125
- Income tax at 40%: £450, paid by the director
- Class 1A NIC at 15%: £168.75, paid by the company
If she pays interest of 2% to the company, the benefit falls to £525.
Other tax effects of a director’s loan
- Section 455: if a loan to a participator in a close company is not repaid within nine months and one day of the year end, the company pays 33.75% of the outstanding amount. This is refunded when the loan is repaid.
- Written-off loans: a written-off loan is taxed as a dividend for the director, and Class 1 NIC may be due.
- Reporting: beneficial loans are reported on a P11D, or through payroll if the company payrolls benefits. Loans are outside the mandatory payrolling rules that start in April 2027, but employers can register to payroll them voluntarily from November 2026.
Averaging or precise method
The benefit is usually worked out using the average of the opening and closing balances. Either the employee or HMRC can ask for the precise method, which uses daily balances. If the rate changes during the year, the calculation needs to reflect each period.
Planning tips
Repay large director’s loans before the company’s year end plus nine months to avoid section 455, and consider paying interest at the official rate to remove the benefit. The interest you pay is taxable income for the company but may cost less overall than the benefit in kind charge and Class 1A NIC.
Frequently asked questions
Does the official rate apply to loans from family?
No. It applies to loans connected with employment.
Are season ticket loans taxable?
Not if the total of all loans stays at £10,000 or less.
Is interest paid by the director taxable for the company?
Yes, as income in the company’s accounts.
Does the rate affect anything else?
It is also used for some other benefits, such as accommodation costing over £75,000.
Related: section 455 refunds, writing off a director’s loan and reporting employee benefits.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with director’s loans and benefits in kind. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
