PTC Question!

Nicolaw1702

Please could somebody help me.....

On the Dec 2006 paper, Section 1 question 1 , it asks you to calculate the assesable benefits .

I dont understand where they get the £140 benefit for the loan?

This has really confused me...Can anybody explain it?:confused1:

mehmet

The loan provided by Steel Ltd (Emily's employers) to Emily is regarded as a Beneficial Loan. This is because the balance of the loan exceeds £5,000, and interest on the loan is charged at 2%, which is below the HMRC official rate.

PLEASE NOTE: THE "OFFICIAL RATE" IN 2005-06 (THE YEAR THE DEC 2006 PAPER IS BASED ON) WAS 5%. FOR THE TAX YEAR 2007-08 (THE YEAR THAT NEXT WEEK'S PAPER WILL BE ASSESSED ON) THE "OFFICIAL RATE" IS 6.25%.

The "benefit" will be assessed on the difference of the rate of interest charged on the loan (2%) and the HMRC official rate (5%). Also, you should note that the loan was taken out on 1 August 2005. Therefore, the benefit needs to be time apportioned to 8 months of the year (Aug, Sept, Oct, Nov, Dec, Jan, Feb, Mar).

To calculate the benefit, we multiply the loan amount by the difference between the two rates and then time appportion:

Benefit = £7,000 x (5 - 2)% x (8mths/12mths)
Benefit = £210 x (8mths/12mths)
Benefit = £140

Nicolaw1702

I am so guna fail this exam!!!

hunter

Hi Mehmet, are you sure about rate being 6.5% because we have been told at our local college 5% and this is also rate used by Osbourne book. I am so confused, hate the tax exam!!!!!!!!!!!!!!!!!!!!!!!

Nicolaw1702

The Official rate of interest is 6.25% or is that something totally different?

In the Kaplan book, it has no reference to what you said mehmet?

mehmet

The HMRC website says it's 6.25% (http://www.hmrc.gov.uk/RATES/interest-beneficial.htm), that's the figure I've used as I did PTC in December, so I don't have any books based on the new year.

The official rate is given to you in the paper, on the same page that has the indexation allowances, tax bands, personal allowances, etc.

Nicolaw1702

Where are you looking?

On that link it says 6.25%?

So.... If in the exam it tells you the rate interest is charged at , you work out the difference between the two?

mehmet

Yes, it appears I misread it. I'll edit my other posts.

As far as the benefit goes, it is assessed as the difference between the official rate and the rate charged, as long as:
-the rate charged is below the official rate, and
-the loan outstanding is greater than £5,000 throughout the year.

Nicolaw1702

Thank you! I understand that now :-)

Hopefully I am ready for the exam

immense

Always use the rate given in the paper - it tells you what to use!!

speegs

Nicola you will be fine.

You can make up the numbers and still pass as long as you treat them correctly. Well not make all of them up. But I say if you get completely stuck take an educated guess and then give that number the correct tax treatment. You will only loose the marks for getting the number wrong but you will still get the marks for the correct treatment.

I think this is called the "student's own figure" rule or something like that.

Good luck anyway. I will also be sitting PTC on Friday.

Speegs

Nicolaw1702

Good Luck to you too!

I'm sure we will do fine, :thumbup: