Salary Advance

UK salary advance rules allow an employee to receive a loan from their employer to cover personal needs. There are some specific advantages to using this advance on wages option to cover emergency expenses vs. taking a loan out from a bank or other lender.

Advantages of using Salary Advances

One major advantage to obtaining a salary advance loan on your wages from your job is that you can avoid the payment of interest. When you borrow money from some other lender in the United Kingdom, such as a bank, then the finance charges occurred on even a modest loan could still cost you hundreds of pounds. In some cases, the initial loan instalment payments may include more interest than principal. So this can make it very challenging for people to pay down their debts over time.

Alternatively, there is zero interest charged when you advance your salary using a loan. So if you are able to use this form of borrowing, it is clearly preferred to a traditional loan, if your employer consents to it. Another advantage is that you could receive the net of the proceeds without PAYE deductions. Since PAYE are taxes withheld on earnings, your employer may delay these withholdings until the salary is actually earned and paid.

When you borrow money from your employer, the future payment of your salary includes actual direct deposits received as well as instalment payments. This is automatically handled by your employer and it will in some ways simplify the repayment process for the borrower. In terms of taxes that need to be paid, there could still be some tax owed due to the additional benefit incurred through the use of the interest-free loan. Due to the complexities of tax law, employers typically consult with qualified professionals to ensure the proper tax treatment has been followed.

Advance Salary Schemes

To maintain the favourable tax treatment, it is essential that your employer follows a documented advance salary scheme that is approved by government regulations. This ensures that there are no unwelcome surprises from HMRC! In most cases, loans below £5000 can typically avoid these problems.

One additional feature of this scheme is the use of equal instalments for repayment of the loan proceeds. This spreads out the impact for you across many payroll periods. This make it easier for the individual to repay the money over time.

The assumption is that when someones takes an advance on their weekly or monthly salary, it can help them during hardship situations. Perhaps you had an emergency or family situation that required additional costs to be incurred. Maybe your job required a relocation. Hardship salary advances are generally approved only after you have exhausted other normal loan options, but your employer may discuss your needs prior to filling your request.

Other advances on your salary can be approved if you have been underpaid and you might be unable to pay your bills if you have to wait until the following pay date. You may or may not want for your employer to be aware of any personal financial issues that you are having. That is a choice you can make. Sometimes though it is worth swallowing your pride to receive extra help with bills before your financial situation is permanently damaged.


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  • Hi Kenneth, great article. I have a question regarding an advance of wages that I received from my employer to put a deposit down on a house. I am repaying the advance loan on a monthly agreement but they are charging a fee as insurance for when someone cannot pay it back. I had to sell the house due to divorce and I am now paying interest even though it's an advance of wages. Are these two charges legal? Where is the law that covers these? Thank you in advance.