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Hi,
With respect to calculation of beneficial loan using strict method, is it calculated as:
(loan outstanding at beginning of year x 4%) + (loan outstanding at end of year x 4%) ?
Thanks!
Loan outstanding at the beginning of year @ 4% + Loan Outstanding at the End of Year @ 4%
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there are two methods of calculating the benefits:
AVERAGE (OR SIMPLE )METHOD:
(BALANCE OUTSTANDING AT START OF TAX YEAR + BAL. OUTSTANDING AT END) X 1/2PRECISE METHOD DAY BY DAY BALANCE ACTUALLY OUTSTANDING
Hi atab, if you have already worked all the questions in the revision kit twice then you should have seen this issue tested and be able to find the answer yourself.
The average method as saba 19 says takes a simple average of the loan outstanding at the start of the tax year and the end of the tax year (or from when in the tax year the loan was taken out or to when in tax year loan was repaid) and applies to this the official rate of interest (for us 4%). We then deduct any interest actually paid if it was not interest free.
The strict basis in the exam will then compute benefit on basis of how many months each level of loan has actually been outstanding again at 4% and again with deduction for interest actually paid.
Either the taxpayer or HMRC then have the right to claim the strict basis.
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