The benefit in kind tax on directors loans that is levied on the director personally. BIK’s are only levied on loans of more than £10,000, and only if interest at the official rate of interest is not paid by the director to the company.
For example, if a director borrows £20,000 from their company and pays interest at or above the official rate (this can be paid monthly, quarterly or annually) then the director would not be subject to the BIK tax on directors loans. If the director does not pay interest or pays below the official rate, then a BIK tax charge is levied on the director personally.
The BIK tax on directors loans charge is applied using the income tax rates. So, it could be 20%, 40% or 45%. In addition, the company will also have to pay Class 1 secondary national insurance on the loan interest at a rate of 13.8%.