PT19 Loans to Employees and Use of Assets Flashcards
If a cheap loan is made to an employee by their employer….
it only leads to a taxable benefit if the aggregate of all loans outstanding throughout the tax year exceeds £10,000.
What are the two methods to calculate the benefit of a cheap loan?
Which should be used?
Average
Strict
The taxpayer can elect for the strict basis if it is lower; HMRC will insist on the strict basis if the benefit would otherwise be significantly distorted.
How is average basis calculated if the loan was made during the year or has been paid off by the end of the year?
Start with the amount of the loan at the point it was made. If the loan outstanding at the end of the year is nil, add on the
amount of the loan at the point it was repaid.
The benefit will be apportioned based on the number of complete tax months for which the loan was outstanding in the tax year.
If the interest is on a qualifying loan (ie a loan the purpose of which would qualify for tax relief)…
If the interest is on a fully qualifying loan, there is no taxable loan or deduction for the interest.
If there is a private or non-qualifying element, the loan is a taxable loan, but relief is given for the relevant amount of qualifying interest.
If the employee has use of an asset the benefit is…
20% × Market value of asset when first provided to an employee
If the employer allows the employee to keep an asset that has been made available to them, the benefit is ….
the higher of:
a. market value when given; or
b. market value when originally provided less amounts already charged for use of the asset.
What do transfer of assets rules not apply to?
cars and houses given to an employee; the benefit here is just market value less any amount paid by the employee.
If computer equipment is provided to an employee?
If computer equipment is provided to an employee solely for business use, there is no taxable benefit.
No benefit arises where the reason for supplying the equipment is to enable the employee to perform the duties of the employment and the employee’s private use ‘is not significant’.
