SimplePay has a built-in item to accommodate the special tax and reporting requirements related to employer loans. There are two steps you need to follow:
Setting Up Loan Instalment
To add an employer loan:
- Go to Employees and select the relevant employee.
- Click on Add next to Regular Inputs and then Employer Loan.
- Enter the relevant information.
- Click Save.
If you are going to charge the employee interest, enter the rate next to Interest rate. Please be aware that interest-free or low-interest loans might have tax implications, as discussed below.
Regular repayment is the total amount that will be deducted from the employee’s pay each period. If you are charging the employee interest, the interest is never deducted directly from the payslip, but is rather added to the outstanding balance.
Click on Calculate Interest Benefit if the loan constitutes a “preferential loan”. PAYE, USC and PRSI apply to the benefit derived by an employee from certain loans at preferential rates of interest.
A preferential loan is a loan:
- made by an employer to an employee or former employee, the spouse of an employee or former employee
- in respect of which no interest is payable, or interest is payable at a rate lower than the “specified rate”
It does not, however, include such a loan where the rate of interest is not less than the rate of interest at which the employer in the course of the employer’s trade makes equivalent loans for similar purposes at arm’s length to persons other than employees or their spouses.
The specified rate depends on whether the loan is a qualifying home loan or a loan for other purposes. SimplePay currently supports only loans for other purposes. The specified rate, which is used in the calculation of the interest benefit, varies from time to time depending on changes in commercial rates. More information is available on the Revenue website.
PAYE, USC and PRSI are to be applied to the difference between the amount of interest paid or payable on the preferential loan in the tax year and the amount of interest which would have been payable in the tax year if the loan had been subject to the specified rate.
Editing Loan Balance
Adding a loan to an employee tells SimplePay that the employee has a loan, but the loan will not yet have a balance, so no repayments will take place. To set a balance, click on Employer Loan under Payslip Inputs and enter the amount next to Balance Increase.
By default, an increase in loan balance is paid out on the current payslip and repayments only start on the next payslip.
If you don’t want to pay out the amount on the payslip, check Don’t pay out balance increase. You will then also have the option to check Balance increase is at beginning of period, which means repayment will start on the current payslip instead of the next.
Please note: if the balance you’re entering is the closing balance from the previous period, both checkboxes mentioned above should be checked.
Setting a Once-off Repayment will override any regular repayment defined for this loan.