Preferential loans

A preferential loan is a loan made by you to your employee or their spouse. It can also be a loan to a former employee or their spouse. The rate of interest you charge is zero or lower than the specified rate set by Revenue. A preferential loan is a benefit in kind, and your employee must pay Pay As You Earn (PAYE), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) on it.

If you are in the business of granting loans to the public, this is not a benefit in kind if:

• the rate you charge to the public is lower than the rate set by Revenue
• your employee is charged at the same rate as you charge to the public.

Calculation of benefit

The value of the benefit is the difference between the interest you charge, and the specified rate set by us. You must deduct PAYE, PRSI and USC from your employee's pay based on this value.

If the loan is a joint preferential loan, the benefit value is the total amount of the loan.

You may provide the benefit to a retired employee. If that employee is receiving a pension payment from you, deduct the tax on the benefit from that payment

The interest charged can be calculated on either:

• the reducing balance
• the average balance for the year (the opening balance plus the closing balance, divided by 2)
• the period the loan was available in that year.

The loan may be a qualifying home loan. If so, you are required to receive a signed statement from your employee confirming this.

Specified rates

The current rates specified by Revenue are: