Contract Elements (Infotype 0016): Beneficial Loans-GB National Features

Definition

Infotype Contract Elements (0016) contains an additional calculation method indicator for the beneficial loans functionality for Great Britain. This is located in the tax for beneficial loans group box.

Use

When employees receive an interest-free or reduced-interest loan (beneficial loan) from their employers, this can produce a taxable benefit (also known as chargeable benefit). Use this indicator to determine whether the average calculation method or precise calculation method is used to calculate the taxable benefit. You set the calculation method indicator if you want to calculate the taxable benefit using the alternative precise method.

Structure

There are two different ways of calculating the taxable benefit from a beneficial loan. The average calculation method is the default setting on infotype 0016, unless the employee or director elects for the alternative precise method.

The chosen calculation method will apply to all loans that have been issued to the employee concerned.

Average Calculation Method

Wage type /LCE is used for the cash equivalent of the loan in the average benefits calculation method.

The taxable benefit is calculated by reference to the official rate of interest. All loans between the employee and employer are treated as if they were one loan. The system takes the opening and closing balances if the loan has been outstanding for the full tax year, or the dates the loan was started or closed, if less than a full tax year. The average loan balance is calculated by adding these two amounts together and dividing by two. The average loan is multiplied by the number of months for which the loan was outstanding in the year, and divided by 12. The result is multiplied by the appropriate average official rate of interest that applied during the period the loan was outstanding in the year. Finally, any interest paid by the director or employee on the loan for that year is deducted.

Alternative Precise Method

Wage type /LBC is used for the cash equivalent of the loan in the precise benefits calculation method.

This method involves dividing the appropriate official rate by the number of days in the year and applying that to the total of the maximum amounts for the loan outstanding on each day in the tax year.

The total amounts of the maximum balances on the loan for each day are, in effect, converted to the equivalent balance for one day, to which one day's interest charge at the official rate is then applied.

The taxable benefit is then calculated by deducting any interest paid on the loan for that tax year.

Integration

The Payroll component reads this infotype together with the following:

See also: