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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 3641
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based)
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what further details do you require please?

Resolved Question:

what further details do you require please?
Submitted: 10 months ago.
Category: UK Tax
Expert:  Tony Tax replied 10 months ago.
Hi.

I cannot see your original question as you appear to have signed up with different user names with only this further details question showing for JACUSTOMER-hk34w68j. Can you let me know what the question is please.
Expert:  taxadvisor.uk replied 10 months ago.

Hello and welcome to the site. Thank you for your question.

You have requested me to answer your question ...Please advise what your question is?

many thanks

Customer: replied 10 months ago.


i received some interest free loans from an employee benefit trust set up by my employer before end 2010 totalling around 500k.


 


i had not declared these on my tax form as i was originaly told that loans are not declarable.


 


then last year after finding out that some of my colleagues had declared these loans, the revinue sent me and my colleagues a national insurance demand, to which we were instructed by our employer to challenge, and our employers also challenged the demand, which has been noted by the revinue.


 


my previous accountant did not say that any tax was due on these loans, however my current accountant says that i may have to pay some interest.


 


what in your opinion is the correct interpretation and for 500k what would the tax be


 


regards steve

Expert:  taxadvisor.uk replied 10 months ago.
Steve, thank you for your reply.

You have asked me for my opinion on whether interest free loan from an employee benefit trust is a chargeable benefit of not.

I must stress, this is my opinion and interpretation on beneficial loans..

There are general guidelines on beneficial loans definitions and/or restrictions.
There are exceptions when there is no benefit or reporting requirement and it would appear one of them is "the combined outstanding value of your loans to an employee is less than £5,000 throughout the whole tax year.

This exception would not apply as you have given me a figure of £500k.

More information on this can be found here
http://www.hmrc.gov.uk/payerti/exb/a-z/l/loans.htm

I would like you to look at EIM26100 - the benefits code covering beneficial loans to employees and in particular to EIM26103 and EIM26110 here
http://www.hmrc.gov.uk/manuals/eimanual/eim26100.htm

I share the opinion of your current accountant that this would be deemed a beneficial loan and subject to interest rate as applied by HMRC official rate guide here
http://www.hmrc.gov.uk/manuals/eimanual/eim26104.htm

The tax payable on it would be the marginal rate applicable based on your total income in the relevant tax year.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 9 months ago.

sorry the last bit, with regard to the 500k 'loan' if it is written off will that have to be declared and if so will it be taxable?

Expert:  taxadvisor.uk replied 9 months ago.
Steve, thank you for your reply.

What were the circumstances surrounding the 'loan' to be written off?
Are you a director/shareholder of the company
Are you referring to declaration by the company or yourself?


Many thanks
Customer: replied 9 months ago.

 


at the moment I have some non voting shares in the company, which I may be able to sell back to the company when I retire in two years.


 


The loans (I think 6 separate ones during 2008/until before end 2010) was made via Montpellier in the isle of man, using money sent by my employer, which I had to apply for and give a reason for the loans, which was for home improvements, however the loan scheme has now been transferred to a company in jersey as Montpellier were raided a few years ago!


 


 


the loans are long dated, however they will be written off if I leave the company, move abroad or die. (or all three!).


 


regards steve


 


 

Expert:  taxadvisor.uk replied 9 months ago.
Steve, thank you for your reply.

Here is a link to HMRC guidelines covering loans to employees written off..it would appear you would be liable to Class 1 NIC on the value of the benefit but not PAYE tax.

http://www.hmrc.gov.uk/payerti/exb/a-z/l/loans.htm#2

I hope this is helpful and answers your question.

If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to you.

Customer: replied 9 months ago.


am I right in saying then that you believe that if I can arrange for the loans to be written off whilst I am an employee, then I will not have to pay any income tax on the loans? only the national insurance?


 


regards steve

Expert:  taxadvisor.uk replied 9 months ago.
Steve, thank you for your reply...

This is a copy from HMRC manual - NIM02210 - Class 1 NICs: Earnings of employees and office holders : loans

Some employers may make loans to employees. These payments are not earnings but a debt which the employee owes to the employer. It makes no difference if the employer finances the loan from its own funds or from another source.

If the employer decides not to ask the employee to pay back any part of a loan and simply writes it off without seeking anything from the employee in return for giving up the debt, the amount written off becomes earnings and will be liable for Class 1 NICs at the time of write- off.

More information can be found here
http://www.hmrc.gov.uk/manuals/nimmanual/nim02210.htm

I hope this is helpful and answers your question.
taxadvisor.uk, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 3641
Experience: FCCA - over 35 years experience as a qualified accountant (UK based)
taxadvisor.uk and 2 other UK Tax Specialists are ready to help you
Customer: replied 9 months ago.


many thanks, XXXXX XXXXX I will have a chunk of cash to pay back then, thank you for your help I will rate the comments positive


 


 

Expert:  taxadvisor.uk replied 9 months ago.
Steve, thank you for your positive feedback.

Best wishes.

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