Loan from my Ltd.

[Contreras]

The default is the averaging method. You can (by election) use the precise method, though in practice the averaging method is simpler and faster. Take a look here for more info on this;
The benefits code: beneficial loans: calculating the cash equivalent: the precise method: consult an Inspector in important cases

Thanks Greg, that and the interlinked pages were exactly what I was looking for.

So interest is calculated based on whole months, with each month 'starting' on the 5th so as to align with the fiscal year.

Confused?... well HMRC seem to be:

For the purpose of the calculation in EIM26215 months begin on the sixth day of the calendar month.

So a loan made on 7 June and repaid on 15 December of the same tax year is outstanding for five whole months (July to November inclusive). But a loan made on 6 June and repaid on 5 December of the same tax year is outstanding for six whole months (June to November inclusive).

I think they slipped up with their example calculation too.

[Wanderer]

The default is the averaging method. You can (by election) use the precise method, though in practice the averaging method is simpler and faster.

Yes, true but we mustn't forget that HMRC can also elect to use the precise method and they most likely will do it if they think it will net them a bit of tax... It's not so difficult to enter the loan amounts into a spreadsheet and calculate the daily interest and this will keep HMRC happy, especially if the loan amount varies a lot... For the sake of a few quid I'd do it using the precise method and avoid a confrontation with HMRC sometime down the line...

[ASB]

Thanks Greg, that and the interlinked pages were exactly what I was looking for.

So interest is calculated based on whole months, with each month 'starting' on the 5th so as to align with the fiscal year.

Confused?... well HMRC seem to be:



I think they slipped up with their example calculation too.

I think you misread it. The text says 6th - which is of course the day of the month the tax year starts on.

In the example the loan granted on the 6th rather than the 7th is therefore clearly for an extra month since it is the complete month.

Or maybe I misread it

[Contreras]

I think you misread it.

You are right!

I won't even try to explain what I was thinking there - clearly I struggle with such advanced concepts as "whole month". duh