EIM26313 - The benefits code: beneficial loans: circumstances where the Inspector should elect for the alternative precise method of calculating the chargeable benefit: example
This example demonstrates circumstances where the Inspector
should elect for the alternative precise method of calculating the
chargeable benefit (see
EIM26230).
A company's accounting date is 31 March. The loan account of
a director of the company was shown by the company's accounts as
having a balance of £2,000 at the beginning and end of the
accounting year. The company makes an election for aggregation (see
EIM26180).
When analysed, the loan account showed the following position
during the accounting year.
|
£ |
|
| Balance outstanding at the beginning of the year 1 April |
2,000 |
| Advance to the director on 1 May |
4,000 |
| Advance to the director on 1 July |
1,000 |
|
7,000 |
|
| Repaid by the director on 1 March |
5,000 |
| Balance outstanding at the end of the year on 31 March |
2,000 |
The Inspector found that there had been no further advances or
repayments over the five days up to 5 April following the company's
accounting year end. None of the loans were qualifying as they were
all used to meet day to day living expenses (see
EIM26120).
The Inspector gave notice of election for the alternative
precise method of calculating the benefit (see
EIM26240 onwards). She did so because
the average of the loan to the director during the relevant tax
year was slightly more than £6,000, although the balances at
the beginning and end of the year were both £2,000. The
appropriate official rate of interest for the year of assessment
was 8%.
The chargeable benefit on the normal averaging method would
have been
| £2,000 + £2,000 |
x | 12 |
x | 8 |
= | £160 |
| 2 | 12 | 100 |
The liability on the alternative precise method was
|
£ | ||||
| 6 April to 30 April | £2,000 for 25 days at 8% | = |
10.95 | |
| 1 May to 30 June | £6,000 for 61 days at 8% | = |
80.21 | |
| 1 July to 1 March | £7,000 for 244 days at 8% | = |
374.35 | |
| 2 March to 5 April | £2,000 for 35 days at 8% | = |
15.34 | |
| Chargeable benefit |
480.85 | Round down to £480 |
The director will be treated as having paid £480 interest
on the loan. However this will have no effect on the final
liability because none of the interest ranks for deduction or
relief or any kind (see
EIM26270).
Note that although the director made a repayment
of £5,000 on 1 March, the maximum outstanding balance on that
day was £7,000.
