1A NICs on the "total amount" of a £10k+ dir loan?

Are class 1As due on the entire amount or just the underpaid interest (if any)?

Didn't find your answer?

I was perusing various guides on the handling of director's loan accounts, as you do, and while I thankfully have no accounts over 10k withdrawn to handle myself, I encountered something that ran counter to my understanding. For example:

"If the loan outstanding is over £10,000 then 13.8% of the entire amount is liable to Class 1A employers NICs."

Of the entire amount? So if a DLA were overdrawn by £15k for a week and then repaid, the company would have £2,070 of 1A NICs to pay? That doesn't sound right or approriate given it was entirely repaid.

Till now I understood the BIK on such an overdrawn DLA would be calculated as the difference between interest paid and the HMRC official rate over the relevant time period (with much smaller class 1A NICs due). I have now seen enough worksheets and "guides", however, saying things like "pay class 1A Employer's National Insurance on the total amount of the loan" and "above £10,000 at any point in a financial year" so I thought I'd check my assumptions, because treating an entire loan as a BIK with 13.8% class 1A NICs due seems to make £10k+ DLAs absolutely essential to avoid..

Replies (3)

Please login or register to join the discussion.

pic
By jndavs
20th May 2023 01:09

Assuming that none of the exemptions apply, the loan would trigger a BIK charge as soon as it exceeded £10K.
However, the benefit is only for 7 days in your example.
NIC is payable on the cash equivalent.
Assuming interest free: Cash equivalent benefit is likely to be zero (normal method) or £15000 @2% x 7/365 under the precise calculation method.
You may need to account for the Social care levy as well.

Thanks (0)
Replying to jndavs:
Head of woman
By Rebecca Cave
24th May 2023 16:46

jndavs wrote:

You may need to account for the Social care levy as well.


The Social care levy doesn't exist! It was never brought into being.
Thanks (1)
avatar
By Tax Dragon
20th May 2023 05:22

I recognise the 'above £10,000 at any point in a financial year' bit as a paraphrase of s180 ITEPA 2003: The normal £10,000 threshold is not exceeded if at all times in the year the amount outstanding on the loan (or, if two or more employment-related loans which are taxable cheap loans are outstanding in the year, the aggregate of the amount outstanding on them) does not exceed £10,000. If the normal £10,000 threshold is not exceeded then the benefit is not taxed. So the paraphrase tells you that if the DLA goes over £10,000 then there's a BIK and you look at the position for the whole year.

A more helpful example is:
DLA is £9,900 for the whole tax year - no BIK.
It stays at £9,900 for the whole of the following tax year too, except for a week in June when the director borrows an extra £200. The threshold is exceeded so at 2% per njdavs the BIK that year is £198.

I don't recognise the rest of what you quote.

Thanks (1)