P11d - Director's Loans

judithc

One of the director's of the company I work for has a loan account which fluctuates throughout the year but which has gradually increased to about £40,000. I understand that this will have to be included as a beneficial loan on Section H of his P11d which is what I have always done.

However, during the the year 2007/08, he borrowed an additional £110,000 but only for 2 days. If I use the averaging method to calculate the cash equivalent of his loan account, the cash equivalent works out to about £6000. However, as the £110,000 was only outstanding for 2 days I wondered if I can treat this as a seperate loan. I note that the P11d working sheet states "number of complete months throughout the loan was outstanding". In which case, do I need to include the £110K in the calculation at all? :confused1:

Sevren

Hi Judith - I can't help you with the answer but will be watching the thread with interest because I've been working on the basis that a Director can't take a loan account above £5K at any point ?

BenElliott

Hello Judith,

I would have thought it worth while giving the HMRC helpdesk a ring to get their view with it being such a short while.

however, I was under the impression that you only need to report the amount actually on loan over £5K on 5th April.

Ben

BenElliott

Hello Judith,

I would have thought it worth while giving the HMRC helpdesk a ring to get their view with it being such a short while.

however, I was under the impression that you only need to report the amount actually on loan over £5K on 5th April.

Ben

judithc

Director's Loans - P11d

Hi Sevren

Yes you're quite right - you only need to include the loan on the P11d if it exceeds £5000 at any time in the year.

However, my query was the fact that the opening balance was £24,000, the closing balance was £40,000, but the loan had gone up to £150,000 during the year. I was unsure whether to just take an average of the opening and closing balance or whether I should take account of the fact that the maximum balance during the year had reached £150,000.

I have checked with HMRC helpline (thanks to Ben for that suggestion) and apparently I only need to use the opening and closing balances at 6.4.07 and 5.4.08 in my calculation on P11d. It doesn't matter that the maximum balance reached £150,000 during the year.

taxing-times

There are two methods of calculating the benefit in kind charge:

1. the averaging method which you have been talking about; and
2. the precise method - this is where you would work out the loan balance on a day by day basis and the benefit in kind would be based on this.

Either party (the employee or tax inspector) can elect for the precise method to be used. HMRC will only insist on this method being used if it would result in a much higher benefit charge than the average method.

More information can be found here on HMRC's website.

Sevren

Hi Judith - now I am confused - I know that I am mixing HMRC and Company law together but I would have thought that company law preventing a Directors Loan from exceeding £5K would have meant that a Directors Loan would never exceed it and that any money taken out of the company after the £5K would be subject to PAYE and not through P11D (Other than the benefit of £5K if no interest is charged).

I am not overly confident with this so would be grateful to anyone pointing out where I've gone wrong :crying:

judithc

P11d - Director's Loan

Thanks "Taxing Times". However, I am completing the P11d on behalf of the employer, so it is my understanding that I must use the Average Method - see http://www.hmrc.gov.uk/manuals/eimanual/EIM26200.htm


Sevren - I'm sorry if I've confused you. Maybe I shouldn't be putting the loan on the P11d but I have done this for the past 4 years or so and nothing has been said by HMRC. Also when I described this scenario to HMRC helpline today they didn't make any comment that I was doing this wrong - so I assume it must be OK - but if anyone knows any better please tell me!!

Judith

taxing-times

Hi Judith

Have you calculated the benefit charge using the two methods? If not, then work out the benefit charge using each method. Is there a substantial difference?

EIM26200 states the averaging method should be used unless the employee elects otherwise or the Inspector gives you notice to use the precise method.

If the loan inceased gradually over the year, than the average method should result in a similar figure to the precise method. The £110,000 increase for two days would not result in a figure too different from the average method.

However, if the loan increased from £24,000 to £40,000 on the second day after the start of the period, than this will result in a difference.

EIM26245 states it is important to inform the tax inspector where tax is at risk by the averaging method being used. Note there is no mention of who must inform the inspector.

So back to the questions at the start - will using the averaging method put tax at risk? (i.e. will the tax man lose out substantially?) If not, it will be fine to use this method. Otherwise, inform the tax inspector and ask his opinion.

judithc

P11d - Director's Loan

OK that's a lot clearer now - thanks Taxing Times.

Judith

Sevren

Hi Judith - I'm certainly not questioning what you are doing - I guess that I am questioning my understanding !

Every now and then I sit back and marvel (and enjoy) how accounting is more of an art than a science !

BIG WAL

Does not reporting of beneficial loans on the P11D apply to all employees earning over £8500pa - not just directors ?

BenElliott

If the discussion is going toward the benefical loan toward all employees then how about the following::confused1:

A company agrees to provide a loan to an employee of £7,000. It is just that the loan is for a car. The deposit is the employees private car but the finance is by the company and the employee has to pay the company's loan repayments back out of salery. After 6 months the amount outstanding is about £5,500. Does this go through the P11d as a loan or a provision of a car?

I have conflicting information from the Revenue. The telephone helpline is insistant on it being the provision of the car and all its disadvantages to the employee. The Business Support Team tell me it is a loan and therefore only £500 is liable to tax and NIC.

What does anyone think?:001_unsure:

PaulPSB

BenElliott wrote: »

If the discussion is going toward the benefical loan toward all employees then how about the following::confused1:

A company agrees to provide a loan to an employee of £7,000. It is just that the loan is for a car. The deposit is the employees private car but the finance is by the company and the employee has to pay the company's loan repayments back out of salery. After 6 months the amount outstanding is about £5,500. Does this go through the P11d as a loan or a provision of a car?

I have conflicting information from the Revenue. The telephone helpline is insistant on it being the provision of the car and all its disadvantages to the employee. The Business Support Team tell me it is a loan and therefore only £500 is liable to tax and NIC.

What does anyone think?:001_unsure:

Who owns the car??
If the car is on the balance sheet then the BIK is for the car - if the car is owned by the individual then the BIK is the loan.

Remember the name on the V5 registration document is not necessarily the vehicle owner and the insurance details might be important.
Also if the vehicle is on HP in the company name this would point to it being owned by the company.

BenElliott

The loan might be in the name of the company but the deposit car in part ex was owned by the employee and used the company's credit card to which he has access for the balance of the deposit. All that goes through the P11d under section 'C' for vouchers or credit cards, so surely this argues for Beneficial loan not Car Benefit?

Ben:001_unsure:

Dean

Ben, if the new car is owned by the company then there will be a company car benefit. When calculating the benefit you can deduct any capital contributions made to the vehicle by the employee. This is where the employee's own vehicle would come in I suspect - this will be deducted in arriving at the BIK.

This whole scenario boils down to ownership...

Regards

Dean

PaulPSB

BenElliott wrote: »

The loan might be in the name of the company but the deposit car in part ex was owned by the employee and used the company's credit card to which he has access for the balance of the deposit. All that goes through the P11d under section 'C' for vouchers or credit cards, so surely this argues for Beneficial loan not Car Benefit?

Ben:001_unsure:

Totally agree provided the "loan" is not an HP agreement naming the company as the owner and the insurance details list the employee as the owner. Worth checking as I took on a client that had done this and got the "paper trail" wrong.

Nilesh Mandvia

Directors Loan P11D and Tax

P11D

As comments posted by taxing times, you have to calculate first BIK using one of the two methods, when loan is in excess of £5,000. The BIK should be reported on P11D for the difference between official rate of interest and any interest actually paid. Inland Revenue give two options in their BIK booklet 480.

Sevren,

You are nearly correct, as loan is in excess of £5,000, it is in breach of companies act. Even though Companies act prohibits loan in excess of £5,000, the loan is in breach of the companies law.


Now it is getting bit complicating


ICTA Section 419,

As per section 419 of ICTA, 25% tax is payable if the loan is not paid within 9 months of the year-end, and this tax is refunded 9 months after the end of the year in which the loan is repaid.

Disclosure

For statutory accounts, you have to disclose a loan to director under Debtors and including director’s name, the maximum amount outstanding during the year and the terms of the loan.


As loan is in excess of £5,000 should be disclosed as being in breach of the Companies Act.


I will come back for loan for car later on.

Nilesh