When do advances trigger PAYE?

Most employers advance monies to employees over different periods, with some being repayable over 12months. The question that arises is when does an advance cease to be one and become a loan subject to PAYE. Unfortunately, there is nothing which speaks to that in the Income Tax Act and neither has BURS issued any ruling on that. However, what is certain is that an advance which is repayable over a long time changes its nature to loan, which then must be taxed. The Income Tax Act stipulates that, ‘the employment income of any person for any tax year shall include – the value of any other benefit or advantage granted to an employee in respect of his or her employment, included in which may be the difference in the amount of any preferential rate of interest granted to the employee by the employer in respect of any loan made by the employer to the employee, and the normal commercial rate currently prevailing’. The law treats loans advanced to employees with interest rates that are less than BoB rates as taxable in the hands of the receiver since it is an advantage in their hands. The amount to be included in the income of the concerned employee is the product of the difference between BoB rate and the preferential rate and the loan value. It is worthwhile to note that if loans are given at rates equivalent or above the BoB rate, then there is no benefit that accrues to the employee.
In our experience, an advance changes to a loan when its repayment period exceeds 12months and this appears to be acceptable in the market. Anything which is less than 12months appears to retain its nature as a non-taxable advance. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax Articles’ tab. This article is of a general nature and is not meant to address particular matters of any person. Please contact us on +267 71815836 +267 3939435 or jhore@aupracontax.co.bw for tax consulting or to join our free Tax WhatsApp group or to know about our 9 Tax e-books