Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Clause 22 - Threshold for benefit of loan to be treated as earnings

Finance (No. 2) Bill – in a Public Bill Committee at 4:15 pm on 1st May 2014.

Alert me about debates like this

Question proposed, That the clause stand part of the Bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

We are making good progress, which hopefully will continue. The clause is concerned with beneficial loans: the loans provided by an employer with interest at less than commercial rates or HMRC’s official interest rate, which is currently set at 3.25% for 2014-15.

The current law, which is set out in the Income Tax (Earnings and Pensions) Act 2003, states that where employers provide their employees with cheap or interest-free loans, such loans do not confer a taxable benefit on the employee where the total of all such loans does not exceed £5,000 at any point in the tax year. Budget 2013 announced that the statutory limit would increase to £10,000 on 6 April 2014, to double that provision. The clause therefore amends all references to £5,000 in that legislation to £10,000. In addition, employers will no longer be required to report details of such loans where the outstanding balance is £10,000 or less throughout the tax year.

The tax information and impact note outlines the Government’s expectation that about 7,000 businesses will benefit from this measure. It goes on to say:

“There will be ongoing savings for companies from reduced administrative costs, either through no longer having to complete the P11D form or through no longer having to fill in the beneficial loans boxes on the form. Overall, it is expected that the resulting reduction in administrative burden placed on businesses…will be around £0.6 million per year.”

Will the Minister elaborate on that and inform us of how the Government arrived at that £600,000 estimated total saving? What will that mean for the average business?

Hon. Members will be aware that beneficial loans are useful to many employees. Indeed, a TIIN from last year estimated that some 25,000 had beneficial loan balances somewhere between £5,000 and £10,000. That does not include those with loans that have smaller  balances. Many employees take out such loans at cheap rates of interest or interest free for the purpose of purchasing season travel tickets; we are aware of the increasing costs of rail fares and their impact. The increase of the £5,000 limit is welcome because it will allow more employees to benefit from such loans. In response to Budget 2013, several people questioned why the change was being introduced in 2014 rather than in 2013. I do not intend to pursue that point, but I note that it has been raised in previous Budgets. I hope that the Minister will respond to my question, but we will not oppose the clause standing part of the Bill.

Photo of David Gauke David Gauke The Exchequer Secretary 4:30 pm, 1st May 2014

I thank the hon. Lady for her support for the clause, which raises the statutory threshold of beneficial loans from £5,000 to £10,000. Beneficial loans are employment-related loans with lower interest rates than average commercial loans. The clause increases the threshold below which benefits relating to such loans are not taxed as a benefit in kind. Benefits on loans in excess of the threshold are treated as earnings of the employment and must be reported to HMRC. The change removes a reporting requirement for many employers, which will lift administrative burdens where loans administered are lower than the threshold.

To elaborate on the savings for companies, the reduction in administrative costs as a result of no longer either having to complete the P11D form or having to fill in the beneficial loans boxes of the form will, as the hon. Lady has said, reduce the administrative burden that businesses face by some £600,000 a year. The administrative savings are in the areas that I have mentioned. Employees take out beneficial loans for a range of purposes, one of the most common of which is to fund the purchase of season tickets for commuting. The beneficial loan threshold has remained unchanged since 1994, and the increase in the threshold is designed to ensure that it more accurately reflects the current levels of loan arrangements. The increase will make it easier and cheaper for employers to help their employees spread the cost of items such as season tickets across a longer period of time.

The change made by clause 22 is expected to benefit approximately 25,000 individuals and 7,000 businesses. The resulting savings in administrative burdens are estimated to be in the region of £600,000 a year. The increase in the threshold will assist individuals and businesses by reducing burdens, and I hope that the clause will stand part of the Bill.

Question put and agreed to.

Clause 22 accordingly ordered to stand part of the Bill.