PTX - loan question

topcat
topcat Trusted RegularRegistered Posts: 452
Can anyone help with this question please?
On 1 November 11, Roweena had been given £15,000 loan on which she paid her employer 1% interest. On 1 July 2013 , Reweena repaid £3000 of the loan, but shemade no other repayment were made
How do you work out the taxable benefit in kind arising from the loan please?

Comments

  • MarieNoelle
    MarieNoelle Trusted Regular Hampshire/Surrey borderModerator, MAAT, AAT Licensed Accountant Posts: 1,433
    You may use 2 methods (assuming 4% HMRC rate)

    1) The average method uses the opening balance of the loan plus the ending balance of the loan divided by 2
    i.e. at 5th April 2013 15,000
    at 5th April 2014 12,000 (3,000 repaid)
    average 13,500 @ 4% = 540

    2) The strict method
    15,000 x 3/12 (April to July) x 4% + 12,000 x 9/12 x 4% =150 + 360 = 510

    The strict method is more beneficial.

    Then deduct the interests paid by the employee
    Contributions = (15,000 x 3/12 + 12,000 x 9/12) x 1% = 127.50

    Benefit in kind arising from the loan :

    510 - 127.50 = 382.50

    Hope this helps
  • topcat
    topcat Trusted Regular Registered Posts: 452
    You may use 2 methods (assuming 4% HMRC rate)

    1) The average method uses the opening balance of the loan plus the ending balance of the loan divided by 2
    i.e. at 5th April 2013 15,000
    at 5th April 2014 12,000 (3,000 repaid)
    average 13,500 @ 4% = 540

    2) The strict method
    15,000 x 3/12 (April to July) x 4% + 12,000 x 9/12 x 4% =150 + 360 = 510

    The strict method is more beneficial.

    Then deduct the interests paid by the employee
    Contributions = (15,000 x 3/12 + 12,000 x 9/12) x 1% = 127.50

    Benefit in kind arising from the loan :

    510 - 127.50 = 382.50

    Hope this helps

    Thank you for your help it really is appreciated, especially on a Saturday night!

    I did the average method as you had done but then wasnt sure where to go from the £540 as the AAT answer is £405?

    so by power of deduction the interest paid by the employee has too be £135 but i have no idea where this is coming from, any ideas ?
  • liveprincess
    liveprincess Well-Known Registered Posts: 214
    You may use 2 methods (assuming 4% HMRC rate)

    1) The average method uses the opening balance of the loan plus the ending balance of the loan divided by 2
    i.e. at 5th April 2013 15,000
    at 5th April 2014 12,000 (3,000 repaid)
    average 13,500 @ 4% = 540

    You need to multiply 13,500 (the average balance) and mulitply by 3% (because HMRC rate is 4% and she paid 1% of it so the benefited from the remaining 3%)
    13500 * 3% = 405

    Hope this helps
  • liveprincess
    liveprincess Well-Known Registered Posts: 214
    And to answer to your last post 1% * 13500 (the average balance) = 135 as you deducted
  • topcat
    topcat Trusted Regular Registered Posts: 452
    And to answer to your last post 1% * 13500 (the average balance) = 135 as you deducted

    thank you very much ! all of the puzzle has finally fit together now :001_smile:
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