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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from employment

Fenwick Ltd lends its employee, Priya, an interest-free loan of £30,000 on 6 April 2025, which remains outstanding for the whole of 2025/26. Using the average method and the official rate of interest of 3.75%, what is the taxable benefit for 2025/26, and what is the Class 1A NIC cost to Fenwick Ltd on it (rate 15%)?

The benefit is £1,125, being £30,000 multiplied by the 3.75% official rate for a full year. Class 1A NIC is charged to the employer at 15% of the benefit, giving £168.75, rounded to £169. Employee NIC rates do not apply to benefits assessed through Class 1A.

  1. ABenefit £1,125; Class 1A £169Correct
  2. BBenefit £1,125; Class 1A £90
  3. CBenefit £2,250; Class 1A £338
  4. DBenefit £562; Class 1A £84

Explanation

Average balance: the loan is constant at £30,000. Benefit = £30,000 x 3.75% = £1,125 for the full year. Class 1A = £1,125 x 15% = £168.75, which is £169. The £90 option wrongly uses 8%, the employee NIC rate. The £2,250 option doubles the benefit.

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