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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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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.