Commentary on Sections Example 3 £150(Pe) – £50(E) = £100 Section 183: Alternative method of calculation
710.This section allows the use of a more precise method of calculating the interest at the official rate on a loan than the method given in section 182. It derives from paragraphs 5 and 5A of Schedule 7 to ICTA.
711.Subsection (1) allows either the Inland Revenue or the employee to choose this method of calculation. This is for the purposes of the Chapter and is not confined to the calculation of the cash equivalent. See Change 31 in Annex 1. For the reference to the Inland Revenue see Change 158 in Annex 1.
712.Subsection (2) sets out the time limit for making the election. This is different from the way the limit is expressed in paragraph 5(2) of Schedule 7 to ICTA which provides that the election must be made “before” the end of the period of 12 months beginning with 31 January following the end of the tax year. This subsection allows it to be made “on or before” that date. This is a minor change to the law. See Change 32 in Annex 1.
713.Subsection (3) shows the calculation as a method statement. This arrives at the precise amount of interest on a day-to-day basis using the exact amount of the loan outstanding for each day. In paragraph 5(3)(c) of Schedule 7 to ICTA the total is divided by 365 days. As in a leap year the daily total would be based on 366 days, this subsection divides the total by the number of days in the tax year. This is a minor change to the law. See Change 28 in Annex 1.
714.Subsection (4) requires that the alternative method should apply in certain circumstances where the cash equivalent of the benefit on the same loan is treated as the earnings of two or more employees.