Income Tax (Earnings and Pensions) Act 2003 section 183

Alternative method of calculation

Section 183 provides an alternative, more precise day-by-day method for calculating the notional interest on a taxable cheap loan at the official rate, instead of using the averaging method in section 182.

• Either HMRC or the employee can opt to use this alternative daily calculation method by giving notice to the other party
• Notice must be given on or before the first anniversary of the normal self-assessment filing date for the relevant tax year
• The method works by calculating interest daily based on the actual maximum loan balance outstanding each day, then averaging over the number of days in the tax year
• Where the same loan gives rise to a benefit-in-kind charge for two or more employees, the alternative method only applies if notice is given to or by all of those employees