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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: when to use the averaging method

Section 182 ITEPA 2003The normal averaging method gives a reasonably fair result in a straightforward case where:

  • the loan is repaid in regular sums, or
  • the amount of the loan remains fairly constant throughout the year.It would produce an unfair result if the loan fluctuated widely during the tax year. A calculation using the averaging method could also be manipulated by an artificial bed and breakfast transaction where the loan is repaid on 4 April and redrawn on 6 April. So a second method of calculation is available (see


When looking at the larger cases, consider whether or not the Inspector should give notice that he or she intends to use the alternative precise method of calculation (see EIM26245).

You will find a list of examples showing the normal averaging method of working out the cash equivalent of the benefit of a loan at EIM26300.