HMRC have tabled regulations which will increase the official rate of interest from 5% to 6.25% from 5 April 2007.

The official rate of interest is used to calculate the taxable benefit on cheap or interest free employer-provided loans.
Loans of £5,000 or less are tax-free but if the loan exceeds the limit, the benefit of the entire loan (not just the excess over £5,000) is subject to tax.

For example an employee provided with an interest-free loan of £10,000 which remains outstanding during the whole tax year will receive a taxable benefit of £625 in 2007/08 (£500 for 2006/07).