The benefits code: beneficial loans: calculation of the cash equivalent: the normal averaging and the alternative precise method
Sections 182 and 183 ITEPA 2003There are two ways of working out the chargeable benefit (the cash equivalent) from a cheap or interest-free loan or loans. They are summarised in the table below.
|Method of working out the cash equivalent of a beneficial loan||Relevant instructions|
|The normal averaging method based on the average of the balances of the loan at the beginning and end of the tax year (or the dates on which the loan was made or discharged if not in existence throughout the tax year).||EIM26210 onwards|
|The alternative precise method based on the maximum amounts of the loan outstanding on each day in the tax year.||EIM26230 onwards|
The averaging method automatically applies unless:
* the employee elects for the alternative precise method, or * the Inspector gives notice that he or she intends to use the precise method.Guidance on when to use the alternative precise method is at
See EIM26300 for a list of examples showing the averaging method and the precise method of working out the cash equivalent of a beneficial loan.