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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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The benefits code: beneficial loans: calculating the cash equivalent: the precise method: formula

Section 183 ITEPA 2003

The alternative precise method of calculating the chargeable benefit can be expressed by way of the formula:

(R x S / 365) - Z = the cash equivalent of the loan
     

where:

R is the appropriate official rate in force during the tax year (where there are changes in the appropriate official rate during the tax year see below)

S is the sum of the maximum amounts of the loan outstanding on each day in the tax year during which the loan was in existence

Z is the interest paid on the loan.

If the appropriate official rate is changed during the tax year:

  • treat each period for which the appropriate official rate is the same as though it were a separate tax year and
  • apply the formula accordingly and
  • add up the results given by applying the formula to each separate period.

This will give the correct result for the full tax year.

The formula set out above is only intended to help you work out the cash equivalent for the purposes of assessment. It is based on the legislation and will produce the correct statutory figure. But it does not supersede or explain the legislation. An explanation ofthe workings of the legislation is set out at EIM26230.

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