The benefits code: beneficial loans: calculating the cash equivalent: the precise method: step-by-step
Section 183 ITEPA 2003
The step-by-step calculation of the cash equivalent of a beneficial loan using the precise method (see EIM26230) is set out in Section 183(3) as follows.
For each day when the loan was outstanding find the maximum amount of the loan and multiply this by the official rate of interest for that day.
Add together each of the amounts from step 1.
Divide the result of step 2 by the number of days when the loan was outstanding.
Finally, deduct from the result of step 3 any interest paid on the loan.
- In practice it may be quicker to do the calculation as follows:
- take each period in the relevant year during which the appropriate official rate of interest remains the same
- for each such period, take for each day in the period the maximum amount outstanding of the loan on that day, and add those amounts together
- multiply that sum by the official rate in force during the period divided by 365
- add together the resulting figures for each period in the relevant year
- deduct from the result of step 4 any interest paid by the employee.
The above steps are set out in a formula at EIM26235.
See EIM26300 for a list of examples showing the precise method of working out the cash equivalent of a beneficial loan.