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HMRC internal manual

Employment Income Manual

The benefits code: beneficial loans: amount chargeable: cash equivalent

Section 175(3) ITEPA 2003

The amount chargeable is called the cash equivalent of the benefit of the loan. This is the difference between:

  • the interest that would have been payable if the borrower had been required to pay interest on the loan at the appropriate official rate (or rates) for the tax year concerned and
  • the amount of interest actually paid by the borrower for the same tax year.

The use of official rates prevents arguments over what would be a commercial rate of interest on an equivalent loan.

Official rates are prescribed by the Treasury by means of Statutory Instrument.

There are tables of official rates at EIM26104 to EIM26106.

Detailed instructions on how to calculate the cash equivalent are at EIM26200 onwards.

As regards the treatment of belated interest payments, see EIM26255 to EIM26257.