August 12, 2020 · 4 min read
If, for example, an employee is experiencing financial difficulties, or a difficult life situation, needs to cover unplanned expenses, etc., and needs to receive funds "yesterday." Personal funds are not always sufficient. They might ask relatives and friends to lend them money. However, they might not have the amount needed. As an option, they could consider a bank loan, the advantage of which is ease of obtaining, but it's important not to forget that significant interest must be paid for using the loan. And in some cases, a loan might not be granted at all. So, what to do, where is the way out? It might be where you work! There are three options:
First, if the person receiving assistance has the ability to repay it, we consider a loan agreement.
Advantages of such an agreement:
Receiving the necessary amount;
Interest-free repayment of this loan;
Partial repayment of the loan, the term is stipulated in the agreement;
This loan is not subject to any tax.
There are no disadvantages, only one "but": the company must have available funds.
Second, the enterprise can provide an employee with non-earmarked charitable assistance. There is one disadvantage – the amount is insignificant, it cannot exceed UAH 2470 per year according to sub-paragraph 170.7 of the Tax Code of Ukraine, as the subsistence minimum on January 1, 2018, was UAH 1762 (1762x1.4=2470 UAH).
Advantages: UAH 2470 is not subject to any taxes (neither PIT, nor Military Levy, nor SSC).
To receive such assistance, certain conditions must be met:
An application from the employee specifying non-earmarked assistance, for example:
"I request charitable assistance in the amount of UAH 2470 due to difficult financial circumstances in my family," or "for my own or my child's health improvement." The main thing is not to specify the purpose in the application, because such assistance will then be considered earmarked.
Earmarked charitable assistance is assistance provided under specific conditions and directions for its expenditure, while non-earmarked assistance is considered assistance provided without establishing such conditions or directions (para. 170.7. Tax Code of Ukraine).
Order from the head.
The amount of non-earmarked material assistance must not exceed UAH 2470 in 2018.
Such payments should not be provided to all or most employees.
Adherence to these four conditions will allow us not to tax the amount of UAH 2470.
In accounting, according to paragraph 5 of Accounting Regulation (Standard) 16 "Expenses," such assistance is recognized as part of expenses, and according to paragraph 29 of P(S)BO 16, it is reflected on the Debit of sub-account 949 "Other operating expenses" or 977 "Other operating expenses." Content of the business transaction: Non-earmarked charitable assistance accrued to an employee Dt 977(949) Ct 663, amount UAH 2470.
In form 1DF, under income sign "169," the amount of non-earmarked charitable assistance not exceeding UAH 2470 is reflected. If the amount of non-earmarked charitable assistance during 2018 exceeds UAH 2470, then the amount of such excess is reflected in form No. 1DF under income sign "126" as an additional benefit.
The third option is taxable material assistance. This can be either earmarked or non-earmarked assistance, but the amount will be significantly greater than UAH 2470. Advantages: the amount is greater than UAH 2470. Disadvantages: taxation. Namely: PIT – 18%, Military Levy – 1.5%. If such an amount is a one-time payment, then SSC of 22% does not need to be accrued, because such assistance is not included in the Wage Fund (Instruction on the procedure for accrual and payment of a single contribution to compulsory state social insurance No. 5, para. 3.31). However, if the payment is repeated, it will be subject to SSC.
According to paragraph 2.3.3 of Statistics Instruction No. 5, material assistance of a systematic nature, provided to all or most employees (for health improvement, due to environmental conditions, excluding amounts specified in paragraph 3.31), is classified as wages, as other incentive and compensatory payments, and therefore serves as a basis for the accrual and withholding of the single contribution.
Thus, by mutual agreement between the company and employees, financial issues related to difficult circumstances can be resolved.
In our opinion, a solution to the problem could be a payday loan provided by the employer.
Accountant
Zavazhenko Nataliia
