707.This section sets out the normal method for calculating the amount of interest that would be payable at the “official rate for a tax year” by the averaging method. It derives from paragraph 4(1) of Schedule 7 to ICTA.
708.This method of calculation does not explicitly apply in deciding whether a loan is within sections 160(1) or 161(2) of ICTA, although it is applied for those purposes in practice. Stating that the methods of calculation are used for all purposes of this Chapter legislates that practice. This is a minor change to the law. See Change 31 in Annex 1.
709.A method statement sets out how to do the calculation, which applies the average official rate for the period to the average amount outstanding to arrive at the notional interest for that period.