Employee Loan

Employee Loan

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An employee of the company I work for was given a loan which was originally processed through payroll as bonus. The gross amount was subsequently transferred from bonus to outstanding loan.His P60 of tax year 2013/2014 reflected the payment as bonus and related tax/ NI etc which also pushed him over the child benefit threshold.A small deduction towards the loan amount was made during the tax year but the deduction was not processed through payroll.

I am now looking to deduct repayment of loan from the employee and I think that the fair way to do this will be from his gross wages so that he gets the benefit of tax/ NI deduction back. Is this permitted?

The loan was interest free and above £5k. However interest on the loan was not declared on the P11d for tax year 2013/2014. How do I rectify this?

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Euan's picture
By Euan MacLennan
20th Oct 2014 16:02

Two wrongs don't make a right

You don't correct a mistake by committing the same mistake in reverse, but this all sounds very peculiar.  Why did the employee not query getting only 68% of the loan (after tax and NIC), rather than the amount of loan he was promised?

However, the solution is quite straightforward.  Your company needs to file an Earlier Year Update under RTI to amend the 2013/14  total figures for pay, tax and Ee's & Er's NIC to exclude the "bonus".  This will result in PAYE being repayable by HMRC to the company and by the company to the employee.  You should give the employee an amended P60.

You would then deduct further repayments of the loan from his net pay in the usual way.

As to the 2013/14 P11D, you need to file an amendment and pay over the Class 1A NIC.

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By SMNBS
20th Oct 2014 17:02

Thank you

I believe in a good year this would have been the year end bonus paid in advance but as things transpired the year end bonus was not generous enough to cover this and hence we are left in this peculiar situation.

Thank you for your advice.

 

 

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