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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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The benefits code: beneficial loans: calculating the cash equivalent: interest paid half yearly: example


This example shows how to deal with interest paid, which falls due half yearly (see EIM26252), when calculating the cash equivalent of a beneficialloan.

An employee, who for 2015/16 and earlier is not in an excluded employment (see EIM20007), borrows £100,000 from his employer on 6 December. The appropriate official rate for theyear is 6%. Interest is payable at 4% a year on 1 June and 1 December each year. Thechargeable benefit for the year the loan is made is calculated as follows.

Interest calculated at the official rate 100,000 x 4/12 x 6% £2,000
Less interest payable and paid the following 1 June 100,000 x 4/12 x 4% £1,340
Cash equivalent (Section 175(1) ITEPA 2003)   £660

Note that interest payable for the year the loan is made is includedin the first half-yearly interest payment on the following 1 June.

The 4 months interest of £1,340 is payable for the year the loan ismade, even though it does not fall due for payment until after the end of the year,because it accrued in the year.