Calculate deductions due on the loan charge
How to calculate the Income Tax, National Insurance and student loan deductions due on the disguised remuneration loan charge.
Overview
If your payroll software provider has not made the changes necessary for you to correctly report the outstanding disguised remuneration loans, you should use HMRC’s Basic PAYE Tools (BPT) to send an Earlier Year Update (EYU) submission.
You’ll need to calculate the tax, National Insurance and student loan deductions due. You may also need to calculate these deductions if you are using your normal payroll software to submit an EYU.
If your current payroll software product cannot perform these calculations for you, you’ll need to use the PAYE and National Insurance contributions calculators or the manual tax, National Insurance contributions and student loan tables.
This guidance explains how to do this.
Payment after leaving
When reporting an outstanding disguised remuneration loan balance and deductions due for an employee who has left, follow the guidance on paying an employee after giving them a P45. You’ll need to work out the National Insurance contributions due using a weekly earnings period and you should treat this balance as an irregular payment.
Calculate deductions
The loan charge arises on 5 April 2019 in the final pay period of 2019.
To calculate the deductions due on your employee’s outstanding loan amount, you’ll need to add the loan amount to their pay for the final pay period in the tax year 2018 to 2019. You must then recalculate the deductions due for that pay period.
For National Insurance contributions and student loan deductions use the gross pay. For Income Tax use the gross pay minus any non-taxable deductions, this is referred to below as the ‘starting pay’ for PAYE Income Tax purposes.
Calculate the PAYE Income Tax due
Where a cumulative tax code was in operation for the employee at month 12, you need to carry out a revised month 12 calculation on the total year-to-date pay for tax year 2018 to 2019.
For example, the previously submitted total year-to-date pay for tax year 2018 to 2019 at month 12 was £36,000. The employee has an outstanding disguised remuneration loan amount of £20,000. You’ll need to carry out a revised month 12 calculation on £56,000.
If the employee has a pay period other than monthly, follow the guidance at section 1.7 in the employer help-book CWG2 (2018 to 2019).
Using the PAYE 2018 to 2019 tax calculator
Before you start using the tax calculator you will need the following information:
- employee’s final tax code
- if PAYE should be operated on a week/month 1 basis, for example if you are reporting an outstanding loan balance for a former employee
- pay frequency
- outstanding disguised remuneration loan balance
- previous year-to-date starting pay
- previous year-to-date tax due
- payment date
You will now need to enter this information into the tax calculator in order to get the income tax due.
You should enter the outstanding disguised remuneration loan balance into the ‘Gross pay’ field. Enter the previous year-to-date starting pay into ‘Previous total gross pay to date’ field.
If for any reason you are unable to use the online tax calculator, you should follow the manual calculation guidance below.
Using the manual tax tables: calculate free pay
You’ll first need to calculate the free pay. Free pay is the amount of tax-free income available due to the Personal Allowance.
For tax codes which have the suffix L, M, N or T, work out the employee’s free pay using tables A – pay adjustment tables.
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Go to the weekly or monthly table that’s appropriate to the payment date. For monthly paid employees, this is on page 68 of tables A.
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Using just the number in the tax code, look up the tax code in the table. For codes of 500 or less, note the free pay directly from the table (pay adjustment to date). For codes 501 to 1000, follow the guidance in the bottom corner of the table. For codes that exceed 1000, follow the guidance on page 3 of tables A.
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Subtract the free pay from the starting pay to get the taxable pay.
For tax codes with a K or SK prefix, at step 3 add the free pay to the starting pay to get the taxable pay. Ignore the guidance covering completion of form RT11.
For tax codes BR, SBR, D0, SD0, D1, SD1 and SD2, use ‘How to use a tax code’ on page 2 of taxable pay tables manual method (April 2018). No Income Tax should be deducted for code NT, but you’ll need to consider National Insurance contributions and student loans deductions.
Non-cumulative tax codes (ending W1 or M1) are operated on a week 1 or month 1 basis. Follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).
Using the manual tax tables: example of working out the taxable pay
An employee is paid £3,000 per month during the tax year 2018 to 2019. They have the standard tax code 1185L. They have an outstanding disguised remuneration loan balance of £20,000.
| Year to date (YTD) pay at month 12 | £36,000 + | ||
| Outstanding disguised remuneration loan | £20,000 | ||
| Total YTD pay | £56,000 - | ||
| Free pay | £11,859.12 | tables A month 12 | 2 × 500 = £10,000.08 + |
| 185 = £1,859.04 | |||
| £11,859.12 | |||
| Taxable pay £44,140.88 |
Using the manual tax tables: calculate the tax due
Using the taxable pay tables manual method (April 2018), work out the PAYE tax due on the taxable pay. Ignore the guidance on completing and using form RT11.
Use the UK tables if the employee’s tax code does not have an ‘S’ prefix.
Go to page 4 and follow the guidance to check if the taxable pay is equal to or less than the figure in column 1 for the pay period.
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If the taxable pay is equal to or less than the figure in column 1, use table B on pages 6 and 7 to work out the tax due. Where the exact amount of taxable pay is not shown, add together the figures for 2 (or more) entries that make up the amount of taxable pay to the nearest pound.
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If the taxable pay exceeds the figure in column 1 on page 4, use monthly or weekly tables C and D, starting on page 8. Starting with table C1, the help text will guide you to the relevant tables for the amount of taxable pay. You’ll need to add together 2 or more figures to get the tax due.
Use the Scottish tables if the employee’s tax code has an ‘S’ prefix. Go to page 12 and follow the guidance to see if the taxable pay is equal to or less than the figure in column 1 for the pay period.
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If the taxable pay is equal to or less than the figure in column 1, use Scottish table B on page 14 to work out the tax due. Where the exact amount of taxable pay is not shown, add together the figures for 2 (or more) entries that make up the amount of taxable pay to the nearest pound.
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If the taxable pay exceeds the figure in column 1 on page 12, use monthly or weekly Scottish tables C and D, starting on page 15. Starting with table C1, the help text will guide you to the relevant tables for the amount of taxable pay. You’ll need to add together 2 or more figures to get the tax due.
Using the manual tax tables: an example of calculating the tax due
This example shows how to calculate the income tax due on the taxable pay of £44,140.88 worked out previously.
| Taxable pay | £44,140.88 | |
| Total tax | £10,756 | table C1 tax month 12, pay £34,500 at 20% = £6,900 + |
| table D1 tax, pay £9,640@40% = £3,856 | ||
| £10,756 |
Should the employee have a tax code that has an ‘S’ prefix (a Scottish taxpayer), the calculation would be as follows.
| Taxable pay | £44,140.88 | |
| Total tax | £11,639.90 | table C3 tax month 12, for pay £31,580 = £6,490.30 + |
| table D3 tax, pay £12,560@41% = £5,149.60 | ||
| £11,639.90 |
You submit this figure using the EYU.
Calculate National Insurance contributions due
Employee’s National Insurance contributions are not calculated on a cumulative basis, but by each earnings period.
For example, in month 12 the employee was paid £3,000 and National Insurance contributions were deducted from this payment. The employee has an outstanding disguised remuneration loan amount of £20,000. You’ll need to carry out a revised monthly calculation on gross pay of £23,000.
For earnings periods other than monthly, follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).
Using the National Insurance contributions calculator
The National Insurance contributions calculator is used for employees other than directors. For directors, you will need to use the director’s National Insurance contributions calculator instead following the separate guidance below.
Before you start using the National Insurance contributions calculator you will need the following information:
- pay frequency
- gross pay for the last reported pay period
- outstanding disguised remuneration loan balance
- National Insurance contributions Category letter
You will now need to enter this information into the National Insurance contributions calculator in order to get the National Insurance contributions due.
In the ‘Gross pay in this period’ field, you should enter the outstanding disguised remuneration loan balance plus the gross pay already paid in the final pay period.
If you are unable to use the online National Insurance contributions calculator, you should follow the manual calculation guidance below.
Using the director’s National Insurance contributions calculator
Director’s National Insurance contributions are calculated on a cumulative basis.
For earnings periods other than monthly, follow the guidance at section 1.7 in employer help-book CWG2 (2018 to 2019).
Before you start using the director’s National Insurance contributions calculator you will need the following information:
- director’s National Insurance contributions category letter
- date of director’s appointment
- outstanding disguised remuneration loan balance
- year-to-date gross pay
- year-to-date employer National Insurance contributions paid
- year-to-date employee National Insurance contributions paid
You will now need to enter this information into the director’s National Insurance contributions calculator in order to get the National Insurance contributions due.
In the ‘Total cumulative pay’ field, you should enter the outstanding disguised remuneration loan balance plus the year-to-date gross pay.
If you are unable to use the online director’s National Insurance contributions calculator, you should follow the guidance in the helpbook CA44 (2018 to 2019) in conjunction with the manual calculation instructions below.
Using the manual National Insurance contributions tables: calculate the National Insurance contributions due
Using the National Insurance contributions tables, work out the employee (primary) and employer (secondary) National Insurance contributions due on the gross pay. The set of tables you use depends on the employee’s National Insurance category letter. Make sure you use the 2018 to 2019 tables.
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Go to the weekly or monthly table for the employee’s category letter.
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In the first column ‘employee’s earnings up to and including the UEL’, look up the gross pay. If the exact gross pay is not shown, use the lower amount closest to the exact gross pay.
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Look across the row for the National Insurance contributions due. Column 1d shows the employer’s National Insurance contributions due and column 1e shows the employee’s National Insurance contributions due. You should also note the figures in columns 1a, 1b and 1c for EYU reporting purposes.
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If the gross pay exceeds the pay figure in the first column of the last row in the table:
- note the figures in columns 1a, 1b, 1c, 1d and 1e of the last row
- scroll to the bottom of the tables document to just below the final category letter table
- carefully follow the guidance to work out the employer’s and employee’s National Insurance contributions due on the earnings above the Upper Earnings Limit, Upper Secondary Threshold or Apprentice Upper Secondary Threshold
Using the manual National Insurance contributions tables: example
| Pay @ month 12 | £3,000 + |
| Outstanding disguised remuneration loan | £20,000 |
| Total gross pay | £23,000 |
| Total employee National Insurance contributions £762.06 | monthly table A for pay £3,863 (UEL) = £379.32 + |
| additional gross pay table £19,137@2% = £382.74 | |
| £762.06 |
| Total employer National Insurance contributions £3,077.13 | monthly table A for pay £3,863(UEL) = £436.22 + |
| additional gross pay table £19,137@13.8% = £2,640.9 | |
| £3,077.13 |
| Total National Insurance contributions payable £3,839.19 | employee National Insurance contributions £762.06 + |
| employer National Insurance contributions £3,077.13 | |
| Total National Insurance contributions £3,839.19 |
You add this amount to the National Insurance contributions made in months 1 to 11 of the tax year 2018 to 2019 and submit this figure using an EYU.
Calculate student loan deductions
If your employee or ex-employee is repaying a student loan, you’ll also have to calculate student loan deductions. If the employee had to make student loan repayments during the tax year 2018 to 2019, their payroll record will state whether their repayments are made on plan 1 or plan 2.
Student loan deductions are not calculated on a cumulative basis, but by each earnings period.
For example, in month 12 the employee was paid £3,000, and student loan deductions were made from this payment. The employee has an outstanding loan amount of £20,000. You’ll need to carry out a revised monthly calculation on gross pay of £23,000.
Using the 2018 to 2019 student loan deduction tables, work out the student loan deductions due on the gross pay.
Use the tables at section 5, 6, 7 or 8 for the appropriate plan type and earnings period interval. For:
- plan 1 employees who are paid weekly, use the table at section 5
- plan 1 employees who are paid monthly, use the table at section 6
- plan 2 employees who are paid weekly, use the table at section 7
- plan 2 employees who are paid monthly, use the table at section 8
For pay periods other than monthly, follow the guidance at section 4 in the student loan deduction tables.
In the relevant table, find the earnings range in which the gross pay falls. Round down to the nearest whole pound. This will show you the student loan deduction due.
If the employee’s gross pay exceeds the last earnings figure in the table.
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Subtract the plan 1 or plan 2 pay period threshold amount from the gross pay.
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Multiply the result (the excess) by 9% (0.09).
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Round the result down to the nearest whole pound to get the deduction due.
The student loan pay period thresholds for the tax year 2018 to 2019 are:
- plan 1 weekly – £352.50
- plan 1 monthly – £1,527.50
- plan 2 weekly – £480.76
- plan 2 monthly – £2,083.33
Example
| Pay @ month 12 | £3,000 + |
| Outstanding disguised remuneration loan | £20,000 |
| Total gross pay | £23,000 |
| Total student loan deductions £1,932 | £23,000 - £1,527.50 (monthly threshold) = £21,472.50 |
| @ 9% = £1,932.52 | |
| Rounded down to nearest whole pound = £1,932 |
You then add this number to the student loan deductions made in months 1 to 11 of the tax year 2018 to 2019 and submit using the EYU.
Earlier Year Update – report tax due on an outstanding disguised remuneration loan balance for tax year 2018 to 2019
To report the employee’s outstanding disguised remuneration loan balance and deductions you have calculated, you’ll need to use your normal payroll software to submit an EYU for the tax year 2018 to 2019.
If your payroll software does not support the submission of an EYU or the reporting of an outstanding disguised remuneration loan balance, you should use HMRC’s Basic PAYE Tools (BPT) to send an EYU submission. You’ll need to enter the previously submitted year to date figures. You will be able to find these using your normal payroll software.
The process for reporting the additional pay is the same as correcting a payroll mistake for a previous tax year.
Follow the fix problems with running payroll guidance and the Basic PAYE Tools EYU guidance.
If you have used the online PAYE 2018 to 2019 tax calculator to calculate the income tax due, you should report the ‘Total tax due to date’ figure as shown on the results screen, in the ‘Correct amount (£)’ field of the EYU.
When you submit the EYU for each employee or former employee, you should:
- enter the amount of the outstanding disguised remuneration loan balance in the ‘Amount of part 7A disguised remuneration income’ field
- include this amount in the taxable pay fields, the gross earnings for National Insurance contributions fields and if relevant the student loan deduction fields
- pay the PAYE tax, National Insurance contributions and student loans deductions due - follow the pay employers’ PAYE guidance
Calculate and report the apprenticeship levy
The increase to your 2018 to 2019 pay bill may mean that you need to pay an apprenticeship levy or pay an increased amount of apprenticeship levy.
If this is the case, you’ll need to submit an extra Employer Payment Summary.
Last updated 24 April 2019 + show all updates
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Guidance on this page has been updated for calculating and manually calculating Income Tax and National Insurance contributions. Links for the tax, National Insurance and director’s National Insurance calculators have also been added.
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First published.