Tax commitment finally set to change after 25 years

Newsletter issue – April 2025

A 25-year UK tax commitment related to Income Tax is set to be axed from next month.

As the new tax year begins on 6 April 2025, rules on The Official Rate of Interest (ORI) are finally set to change. In January 2000 it was decided to not increase the rate during the tax year, and it has remained that way ever since.

HMRC is now highlighting the change through communications with businesses as we get near to the new tax year. The ORI is used to work out the Income Tax charge on the benefit of employment-related loans. It also applies to the taxable benefit of some employment-related living accommodation.

In terms of how it affects employers, HMRC officials stated the following: 'If you provide employment-related loans or living accommodation to your employees, you will need to remain aware of any future changes in the rate. As of 6 April 2025, the rate may increase in-year which will impact the taxable value of the benefits you provide.'

This change was originally announced in the Budget in October 2024. The Budget papers stated: 'The previous public commitment, made by the Inland Revenue in January 2000, that the rate will not increase in-year will no longer be applicable. As of 6 April 2025, the official rate of interest may increase, decrease, or be maintained throughout the year.

'This measure will enable the official rate of interest to increase in-year where appropriate, ensuring employment-related beneficial loans and living accommodation are correctly valued.'

• The Taxation of Chargeable Gains Act (TCGA) 1992
• Income Tax Act (ITA) 2007
• The Corporation Tax Act (CTA) 2009