Q&A: Limit at which NIC must be paid on a debt to your company

Q. My company regularly pays expenses on my behalf which I later reimburse the company for so I have a variable outstanding debt with the company during the year. I‘ve read that if the total of that debt exceeds £10,000 at any point the company must pay NIC at 13.8% on the entire amount. Is that correct?

A: The company must pay NIC at 13.8% on the value of the deemed interest on the outstanding debt, which is treated as a taxable benefit for you, assuming you don‘t actually pay interest on that debt.

While the total debt is less than £10,000 there is no taxable benefit in kind, so it’s only periods during which the debt exceeds £10,000 when the nominal interest needs to be calculated at the official rate (currently 2.25%).

If the debt was £12,000 for 3 months, the benefit in kind would be: (2.25% x 12,000) x 3/12 = £67.50. As a 40% taxpayer you would pay tax of £27. The company would pay NIC at 13.8% on £67.50 = £9.32.

About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.