HMRC nudge letters targeting director loan accounts: Action may be required

Whilst HMRC may view these nudge letters as a “helpful reminder” to businesses, there is the possibility of HMRC following up with further checks on businesses, proactive action now could prevent future issues and unnecessary penalties.

What happens if errors are found?

If a disclosure is required following receipt of a nudge letter, HMRC is likely to treat the error as prompted, which may mean higher penalties. Furthermore, if the company was aware of the requirement to report a BIK and chose not to do so, HMRC will view this behaviour as deliberate, and this opens the door for HMRC to have a 20-year time limit to make an assessment.

Understanding beneficial loans

A loan is considered beneficial if interest is charged at less than HMRC’s Official Rate of Interest (ORI). The ORI for 2024/25 was 2.25%, increasing to 3.75% from April 2025, and is now reviewed quarterly.

To avoid a loan being treated as a BIK, the following strict conditions must be met regarding interest:

1. Interest must be actually paid
2. It must be paid within the relevant tax year
3. here must be an obligation to pay interest during that year

We often see weaknesses in conditions 1 and 3 being satisfied. Condition 1 requires the payment of interest – simply adding interest to the loan does not count as payment. More information on capitalised interest and the impact on beneficial loans can be found here.

Action you may need to take

Whilst the HMRC nudge letter is not a formal compliance check, it’s a timely reminder to review and correct your position. It’s also an opportunity to ensure beneficial loans are correctly reported on P11Ds for the 2024/25 tax year before 6 July 2025 to avoid penalties.

Key points to consider:

• Interest must be paid before 6 July to avoid reporting the loan on the P11D
• If interest is paid after that date - but all other conditions are satisfied - the employee can request a personal tax recalculation. However, the employer does not need to amend the submitted P11D

We are here to help

Beyond supporting clients with their P11D reporting obligations, we can help them satisfy the conditions necessary to avoid a reportable beneficial loan. Our support includes:

• Advising directors or employees to make interest payments to the business before 6 July
• Assisting with interest calculations, even if estimates are needed ahead of full loan details being available
• Recommending the creation of a formal loan agreement to confirm the obligation to pay interest

If you have received an HMRC nudge letter and are unsure on next steps or would like support to ensure you’re complying, please get in touch with Lyn Newbury, lyn.newbury@azets.co.uk or 01233 629255.