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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 method

Section 182 ITEPA 2003 The normal averaging method of calculation is based on:

  • the average amount of the loan (or aggregate loan, see EIM26180 onwards) calculated by reference to its maximum opening and closing balances (see EIM26212) at the beginning and end of the tax year. If the loan was not in existence throughout the whole year, the average is based on the maximum balances on the dates the loan was made or discharged and
  • the average appropriate official rate of interest (see EIM26104) for the tax year, or for such shorter period as the loan was in existence.See

EIM26215 for how to perform the calculation step-by-step.

See EIM26300 for a list of examples showing the averaging method of working out the cash equivalent of a beneficial loan.