Benefits Code II: Not Low Paid Employees

31

A has borrowed £10,000 from his employer just before the start of the year of assessment. On 30 June he repays £3,000 but on 3 September he borrows another £4,000. The amount outstanding at the end of the year of assessment is £11,000. A pays £450 in interest; assume that the official rate is 12%.

(1) Simple calculation:
       Average amount outstanding during the year £11,000 1 10,000 5 £10,500
       Official rate at 12% would give £1,260

(2) More precise calculation:
      First period 10,000 3 85/365 3 12%        £   279.45
      Second period 7,000 3 65/365 3 12%     £   149.59
      Third period 11,000 3 215/365 3 12%   £   777.53

            Total                                                         £1,206.57

So, cash equivalent is £1,206.57 2 £450 5 £756.57.

The official rate is determined by reference to commercial mortgage rates.¹⁶⁹ The official rate for 1999–2000 and 2000–2001 is 6.25%.¹⁷⁰

17A.4.3.7    Foreign Currencies

Special rules provide for the calculation of the official rate of interest where the loan is made in the currency of a foreign country. For this rule to apply the employee must normally live in that country and have done so at some time within

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