October 29th, 2012 / Insight posted in

Avoid form filling on loans to staff

HD writes: Our shop manager has asked if he can borrow £8,000, which he would repay over 12 months through deductions from his wages. Would we need to report this as a benefit? I would prefer to avoid the form filling that benefits bring.

If the manager earns £8,500 or more, then any loan over £5,000 is reportable on a P11D expenses and benefits form, writes Jon Sutcliffe, partner at Kingston Smith LLP.

Whether it gives rise to any tax is another matter. If you do not charge interest on the loan, or the interest paid is less than the official rate (currently 4%), there is a tax charge.

The amount on which tax is chargeable is called the cash equivalent of the benefit. This is the difference between the interest that would have been payable at the official rate and the amount of interest actually paid by the borrower in the tax year.

Getting your employee to pay interest is probably the simplest thing to do — at 4%, it adds only about £14 a month to the repayments, and saves on national insurance calculations and coding notices that result from a benefit.

Assuming the money is lent now and repayments started next month, then the balance will (just) fall below £5,000 by the end of the tax year, meaning P11D reporting will only be an issue this tax year, and can be avoided for the next tax year. P11Ds should be prepared and filed by July 6. Employer’s national insurance is payable later that month, on the 19th.

If the employee has more than one loan from the company, such as a season-ticket loan or expenses advance, then they should be taken together when considering the £5,000 reporting threshold. The £8,500 limit refers to the value of salary and benefits and is reduced pro rata for joiners and leavers. Below the £8,500 threshold, P11D reporting is not required unless the individual is a director.