PTX - loan question

topcat

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?

MarieNoelle

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

MarieNoelle wrote: »

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

MarieNoelle wrote: »

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

And to answer to your last post 1% * 13500 (the average balance) = 135 as you deducted

topcat

liveprincess wrote: »

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: