Employer Loan

Iwillresolvemydebt

Afternoon,

My employer loaned me £14,000 almost two years ago to pay off some credit card debt that i was struggling with at the time (very lucky, I appreciate). I am still repaying this interest free loan back (it comes out of my salary each month so I don't see it). Am I liable to pay tax on this? I ask because I think I am doing so but I cannot really tell from the info on my payslip. Is it classed as a benefit?

Furthermore, the reason this came up at all is because I am getting a payrise as of end of November and wanted to see what this looked like in terms of what I will see from it - it is/was all a bit cloudy because of the loan repayments.

Thanks in anticipation, for any help.

robber2

No, you are not liable for any tax on either the original loan or your repayments. You will however be paying income tax on your salary before the loan repayment is deducted.



Assuming you are a 20% income tax payer as a rough guide about 30-35% of your payrise will likely be taken in tax, pension and NI. The remaining 65 to 70% will be your net pay rise.




Hope this helps


Rob

Iwillresolvemydebt

Thank you. So next question, how can i find out if i am paying or have paid tax on this. I have a recollection of someone saying to me that i will be liable for tax and as such, I assume someone has 'arranged' for this to happen.

maisie_cat

I believe that if the interest is below the HMRC "official rate" then the difference between zero and the HMRc rate interest is a benefit in kind. Nothing on the loan itself as you are repaying it.

[Deleted User]

Hi,



do you have any paperwork regarding the interest free loan and repayments?


Is there any detail on your payslip regarding loan repayment?


I would think that your employer will be withholding £xx from your net wages.

Ben8282

I am not really clear about what is being asked here.
Are you saying that you were or suspect that you were charged income tax on the amount of the loan at the time that you received it or are you asking if you need to pay income tax on the repayments?
If the former, then no. You should not have paid income tax on the loan. As to how you can find out if you paid income tax on it at the time, your payslip would have shown a MASSIVE income tax payment that month which would probably have wiped out your entire net salary. Presumably the loan itself was not shown on your payslip … or was it? If it was, as what?
If the latter, yes. Repayments of the loan will be deducted from your net pay.
You have a very generous employer by the way .I have heard of employers giving annual season ticket loans but to now have never heard of employers giving debt consolidation loans!

jonesMUFCforever

HMRC official rate for tax year 2019/20 is 2.5%
So if your employer charges you nil interest the taxable gain is 14000 x 2.5% = £350 - which should be taxed at your highest band rate - assuming basic rate of around £70 per tax year.
Does your P11D show this loan at all?

Ben8282

jonesMUFCforever wrote: »

HMRC official rate for tax year 2019/20 is 2.5%
So if your employer charges you nil interest the taxable gain is 14000 x 2.5% = £350 - which should be taxed at your highest band rate - assuming basic rate of around £70 per tax year.
Does your P11D show this loan at all?

Very interesting Thanks for pointing this out. I didn't realise that this could be considered as a taxable gain. But I am a little confused. What if an individual took out a commercial loan at less than 2.5%?. What about 0% no-fee balance transfers? What if you borrow at 0% from the bank of mum and dad?

boo_star

Ben8282 wrote: »

Very interesting Thanks for pointing this out. I didn't realise that this could be considered as a taxable gain. But I am a little confused. What if an individual took out a commercial loan at less than 2.5%?. What about 0% no-fee balance transfers? What if you borrow at 0% from the bank of mum and dad?

The context of it is in relation to an employer giving an employee a loan though.

robber2

Apologies Iwillresolvemydebt it seems that like Ben8282 I was unaware that HMRC may consider an employee loan as a taxable benefit.


All the best



Rob

Ben8282

boo_star wrote: »

The context of it is in relation to an employer giving an employee a loan though.

Well yes. A very strange loan indeed. The first time I have ever encountered an employer giving an employee a debt consolidation loan repaayable over a period of years.
I wonder if it is legally enforcable. For example, if the employee had resigned the very day after receiving it, could the employer have obtained a ccj? Not saying the employer is a loan shark, after all the loan is at 0%, but very curious as to how the company accounts reflect this loan, what paperwork or formal loan agreement accompanied it, if it is governed by the Consumer Credit Act or not and, above all, just why the employer decided to extend this loan.