Company Loan

[082stewie]

Hi All,

 

I have a slight issue with repayment of a company loan.

 

Some time back I ran into severe debts and the company I work for helped me out with a loan. They didn’t have to, but I have been a loyal subject for 14yrs.

 

Repayments of £500per month to the debt of £11000, it’s at 0% thankfully! This is deducted off my salary after tax.

 

My problem, is it fair to deduct this amount of my salary every month when I really can’t afford it? (they decided on the amount I didn’t) They sent me through a payment schedule and I signed it. I asked for a payment break of two months hence breaking the payment agreement. They agreed and submitted a new payment schedule, this time for a repayment of £700 per month. I cannot afford this at all, and told this to Finance person involved I couldn’t afford £700 let alone £500, I did not sign it and said I needed to discuss this further.

 

This was three months ago, last month they only took £500 and this month they have taken £700 from my salary without letting me know.

 

How do I go about changing this? Can the company insist on my repayment amount? £700 a month is just over 25% of my net salary so it’s a big hit every month...I would like to pay them £250 per month. How do I go about doing this?

 

Can I ?

 

Stewie

Edited November 27, 2008 by 082stewie

[poppynurse]

I personally would be grateful that the company had been good enough to offer an unsecured interest free loan of a large amount of money - this must be saving you a significant amount in interest. They have also allowed you to take a payment break.

 

I can see absolutely no gain to the business from this and it will be costing them in terms of loss of use of the capital, particularly in these tough times. I can see why they want the loan paid off - if you reduce the payments to £250 it will take nearly three years beore it is paid off - who knows what position the company will be in next year or beyond.

 

I personally would just accept that this needs to be repaid on their terms as they have done you a big favour.

 

Sorry if this is not what you want to hear - it is just a personal opinion from someone who is paying over £210 per month interest on a debt of £9.5k before even touching the debt!

[patdavies]

Another thing that you may not want to hear is that you may be liable to income tax on the benefit of 0% interest...

[082stewie]

Hi Poppy,

 

Thanks for your honesty, and kills me to say it but I do agree with you. But when 25% of your salary gets knocked off and 40% to tax its 65% gone.

 

Yes the company has stretched a loan to me and I am greatful, but 14yrs of service and being shipped to three countries to help is a commitment from my side to. The bussiness is doing exceptionally well and the credit crunch has no "real" impact on my industry, I hope!

 

I wouldnt mind paying a nominal interest rate to the loan. There are many reasons why the company gave me the loan without question, I am a founding member and not going to run away, I have share options worth far more than the loan total. I would even be prepared to offset the loan amount on the shares. And many other reasons why they helped me.

 

I do know the company loaned me the money in good faith etc etc.

 

My point and question is, do I have any legal grounding to ask for a reduction or is there a guideline for company loans?

 

Stewie

[082stewie]

I pay the loan after tax, the amount is not deducted pre-tax, that would be an offence.

 

Its not a perk.

[patdavies]

I pay the loan after tax, the amount is not deducted pre-tax, that would be an offence.

 

Its not a perk.

 

You miss the point. The loan isn't a perk, but the interest rate is.

 

You are receiving a taxable benefit equivalent to 'proper' interest on the loan.

 

In a similar situation, building society/bank employees have to pay tax for their preferential interest rates.

[082stewie]

I dont see the relevance of this to my original question. But take your point.

 

 

Thanks

[Monty2007]

Hi, you will find that this is a taxable benefit and as such will be liable for tax, you will have to submit a self assessment since if the revenue find out they will fine you and add interest.

 

Your tax will be based on the difference with what you pay in interest (i.e. 0%) and a loan rate. I would seek advice from your employer or the inland revenue.

[082stewie]

I dont mind paying interest on it, if the amount is lowered then why not. It takes longer to pay off and company would gain some benefit from it.

 

My point is £700 a month is a killer and I would like some advice on what way would be the best to lower it

[Monty2007]

I dont mind paying interest on it, if the amount is lowered then why not. It takes longer to pay off and company would gain some benefit from it.

 

My point is £700 a month is a killer and I would like some advice on what way would be the best to lower it

 

I would produce an income and expenditure sheet and share it with your employers and see if they can reduce it to a manageable amount. As pointed out above, they have been helpful but it is not really helping you since you can't afford the repayments. It is not a normal consumer credit question since you have a private arrangement and it is not subject to the CCA 1974. You have to open a duologue and be armed with a good argument for them to see your side and present a solution or options thereof.

[082stewie]

Just to close this off. I had a meeting with the CEO and the Finance Director and they are both of the same opinion this loan has to be repaid at the set out schedule and thats final.

Considering the finance director also deals with my finances, he would have seen clearly there was no way I could afford to repay the loan on the terms set out.

More going out than coming in. So it was no surprise when I said I couldnt repay at those terms.

 

Im VERY bad with money.

 

I am thankful they did help when I asked for it. So I shall take that onboard and repay it and bite the bullet for the short term.

 

 

At least I tried.

 

Stewie