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Employee Loan Write Off

SAY101
Posts: 4
Joined: Fri May 12, 2017 3:16 pm

Employee Loan Write Off

Postby SAY101 » Fri May 19, 2017 2:33 pm

I have the situation where we made a loan to an employee for, say £2k in the 2016/17 tax year.

Time passes and some of it had been paid off and, unfortunately, the employee's contract is terminated.

The value of the outstanding loan (say £1500) has been written off to the P&L.

How is this treated in the P11d?

I believe it is a taxable (or NI'able) benefit but equally I see from the P11d form that I am to ignore loans that don't exceed £10,000.

Any advice would be greatly appreciated.

bd6759
Posts: 2071
Joined: Sat Feb 01, 2014 3:26 pm

Re: Employee Loan Write Off

Postby bd6759 » Fri May 19, 2017 3:41 pm

A written off loan should be PAYE'd for both tax and NIC. The £10K exemption applies to the benefit of having a loan. A write off is a caash payment.

AmanSood
Posts: 71
Joined: Mon Jan 09, 2017 4:12 pm

Re: Employee Loan Write Off

Postby AmanSood » Sun May 21, 2017 5:29 pm

Just to clarify a loan write off is a Form P11D item for tax purposes so should be reported on the employee's Form P11D (in the non-Class 1A NIC box). In addition to this, the write off should be processed via the payroll for Class 1 employer and employee NIC only (no tax payable via the payroll).
Advising on UK employment, expatriate and personal taxes
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SAY101
Posts: 4
Joined: Fri May 12, 2017 3:16 pm

Re: Employee Loan Write Off

Postby SAY101 » Tue May 23, 2017 9:47 am

Excellent. I will put the figure in Section M.

Thank you both for your time in responding.

bd6759
Posts: 2071
Joined: Sat Feb 01, 2014 3:26 pm

Re: Employee Loan Write Off

Postby bd6759 » Tue May 23, 2017 4:28 pm

If a loan write off is chargebale under s62, it is a PAYE matter not a P11D matter.

LozaACCS
Posts: 1489
Joined: Wed Aug 06, 2008 3:55 pm

Re: Employee Loan Write Off

Postby LozaACCS » Tue May 23, 2017 8:50 pm

I would assume that the statutory authority for the S62 (and PAYE) view is derived from S188 (1) ITEPA 2003, in my opinion this would be excluded by S189 of the same act, so yes I would agree with the P11D view.
Interestingly though, no one has considered in detail whether and how the loan should be written off.
The company could receive CT relief by making a specific provision against the debt, it does not need to write it off to achieve this, it appears to me that the only benefit that can be achieved by the employer from a formal write off is to create a P11D benefit for the employee, which it might want to do to cause mischief to the former employee.

bd6759
Posts: 2071
Joined: Sat Feb 01, 2014 3:26 pm

Re: Employee Loan Write Off

Postby bd6759 » Wed May 24, 2017 9:23 am

No. The statutory authority is s62. s188 is a further provision, but if s62 applies s188 will not apply (because of s189(1)). PAYE income is defined at s683(2), which takes you to s10, which takes you s62,

That said, HMRC further guide to PAYE says it is a P11D matter. I can understand why. If there is a significant write off, operating PAYE would not be practical.

LozaACCS
Posts: 1489
Joined: Wed Aug 06, 2008 3:55 pm

Re: Employee Loan Write Off

Postby LozaACCS » Wed May 24, 2017 8:33 pm

So what should the OP do, since there is clearly less than certainty on the tax treatment.
My advice would be to provide for a specific bad debt in the accounts but not to formally waive or otherwise release the ownership of the debt, since the loan has not then been waived nor the debtor released from his obligation then there are no PAYE or P11D obligations, (IMHO).

bd6759
Posts: 2071
Joined: Sat Feb 01, 2014 3:26 pm

Re: Employee Loan Write Off

Postby bd6759 » Thu May 25, 2017 9:01 pm

But it is not a bad debt.

I'd be inclined to follow HMRCs guide and treat it as a P11D item. Having re-read the OP, the employee has left the employment which may take it out of s62. s188 will apply because it takes precedence over s403 (termnation payments etc)

LozaACCS
Posts: 1489
Joined: Wed Aug 06, 2008 3:55 pm

Re: Employee Loan Write Off

Postby LozaACCS » Thu May 25, 2017 9:57 pm

It seems pretty bad to me.
I look at this from a moral perspective that if an employer waives or releases a loan with an intention of avoiding tax on the employee or seeking to assist the employee in his attempt to do so, then the P11D or general earnings rules are set in place to counter this, (although it is clear that we do not know specifically how to proceed on the issue).
I would contrast this with the position here (I assume), where the employer (to use emotive language) has been stiffed by the former employee, why should the employer, who is already out of pocket suffer even more.
The employer needs to recognise in his accounts that he has a bad debt under GAAP, section 35(b) ITTOIA 2005 in my opinion allows him to do this and obtain tax relief, releasing the former employee from his debt is probably the last thing he desires, and in my opinion is not necessary.
For VAT purposes I believe the debt must be formally written off, I do not believe there is any such requirement for income or corporation tax purposes.
I would reiterate that no P11D nor PAYE adjustment is required since no formal release or waiver of a debt has taken place.


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