Sorry - probably a simple question but haven't satisfied myself I've found the answer. Can an employer make a loan to an employee of £10,000 and allow the employee to repay it using a form of salary sacrifice by forgoing gross quarterly bonuses until the original sum is repaid?
That is to say repay it more quickly with gross pay sacrifice rather than repaying out of net pay. As it will be repaid out of expected quarterly bonuses it will not require a formal salary sacrifice of basic monthly pay but will be foregoing quarterly bonuses. Of course, this will be documented but is it OK? I can't find a definitive answer but am sure it is not difficult for someone who has come across Salary Sacrifice regularly or has better knowledge of PAYE regs than me.
Many thanks in anticipation.
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I suggest:
1)calculate the net pay for the quarterly bonus month without the bonus e.g £1k
2)Calculate the net pay for the quarterly bonus month with the bonus e.g £2.5k
3)Make a post tax/ni etc payroll deduction for the diff of £1.5k and offset against the loan
Then the bonus is taxed correctly
I wouldn't imagine you can use the gross, surely then you are making an employee benefit to be taxed regardless (you'll just be hiding from payroll)
Not salary sacrifice. That term is used in a technical way
But employee can have an after tax and NI deduction from wages used to repay the loan.
If you could then we could all loan out employees their annual salary at the start of the year, have them repay it out of gross pay and they'd never pay tax.
If things look too good / easy to be true - then they are.
I wouldn't spend too much time trying to 'prove' this cannot be done, as common sense tells you it cannot be permissible.
"Appreciated the answers thus far that seem to confirm my thinking."
They don't "seem to" ... they should be taken as categoric, if only because (aside of all the other issues) Salary Sacrifice can only be considered for a non-cash benefit.
You've fallen for the trap that Paul pointed out - using 'salary sacrifice' in its technical sense. OP is talking about using bonuses to repay a loan. I don't know what that is, but it's not salary sacrifice... indeed the OP (confusingly) even said as much in the OP!
Well this heffalump has always been a willing participator in testing traps.
But FWIW I was concerned that OP's concluding post suggested a lack of absolute certainty regarding the option to re-pay from gross salary. So, since the only 'cover' for so doing that OP had suggested was 'a form of Salary Sacrifice', I was endeavouring to point out that wouldn't even get onto the starting-blocks (let alone off them)!
This is another faux Aweb argument we're having*. I think we agree in every regard, but make the same point in different ways, leading to apparent disagreement when there is none.
*.oO They seem to follow me around.
[Pauses for thought.]
I see no disagreement (even holding telescope to good eye), or indeed argument.
I prefer to classify it as clarification during discourse!
[The concept of being stalked by faux arguments has given me an idea for a short story - so many thanks].
Yes, I have had several employees over the years asking this, as if they are the only ones to have ever thought of it.
I just say that if it was possible, everyone would be doing it as they wouldn't have to pay any tax or ni ever.
No!
You need to put the bonuses through paye as usual
The loan can be repaid as a deduction from Net pay. The repayment schedule is upto the company...
make sure you document the agreement and include a clawback so that if the employee leaves you have the ability to reclaim the loan.
You don't say whether interest is charged or not
bear in mind that at that level you are right on the limit for tax free loans, and the £10k limit is ALL loans outstanding not per loan also you do not say whether this employee is a director, in which case the 9 month rule for loans to Directors comes in to point! as well as potential P11d Bik for the employee
So, the "loan" is, in reality, an advance of the bonuses!
Payroll the £10,000 "loan" that he does receive and don't payroll the quarterly bonuses that he then goes on to not receive. It's as simple as that.
PAYE/NI is due when the employee receives a payment of, or on account of, their earnings.
This is an old thread but could anyone comment on the meaning of this HMRC guidance in the context of this thread?
"You do have to report loans to your employees or their relatives if they’re made as part of a salary sacrifice arrangement."
https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/wha...
It means what it says. Linking it to this thread does not change its meaning and I'm not sure what point you are making.
It was the comment that "... Salary Sacrifice can only be considered for a non-cash benefit." by Hugo that confused me.
You need to treat almost any guidance within GOV.UK as facile (or at least take it with a pinch of salt where you try to read it within the context of the gov.uk topic) ... or preferably seek out the actual relevant legislation.
In the case of your URL, the topic is "Expenses and benefits: loans provided to employees" - and its the treatment of the loan as a Benefit (low or no interest) that is under discussion. [It is NOT about the loan itself (such as not being repaid or treated like a gift which would then be a 'cash benefit' and should go through payroll rather than being considered a BiK).]
So the *provision of* a Loan (not the loan itself) on preferential/non-commercial terms is a non-cash BiK - and is the purpose of guidance provided by that gov.uk page.
What do they mean by the additional sentence "You do have to report loans to your employees or their relatives if they’re made as part of a salary sacrifice arrangement" ... it's so badly worded that who can be certain?
But it doesn't change the basic precept that "... Salary Sacrifice can only be considered for a non-cash benefit."
Attempting to understand a single sentence with no regard to its context is to invite failure.