© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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S1: Interest to HMRC
Income tax, CGT and corporation tax
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- Interest on overdue income tax and CGT
"(1) The following, namely—
(a) any amount on account of income tax which becomes due and payable in accordance with section 59A(2) of this Act, and
(b) any income tax or capital gains tax which becomes due and payable in accordance with section 55 or 59B of this Act,
shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the relevant date until payment." (TMA 1970, s.86(1))
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Relevant date
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"(2) For the purposes of subsection (1)(a) above the relevant date is whichever of the dates mentioned in section 59A(2) of this Act is applicable; and for the purposes of subsection (1)(b) above the relevant date is—
(a) in any such case as is mentioned in subsection (3) of section 59B of this Act, the last day of the period of three months mentioned in that subsection; and
(b) in any other case, the date mentioned in subsection (4) of that section." (TMA 1970, s.86(2))
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"(3) Subsection (1) above applies even if the relevant date is a non-business day within the meaning of section 92 of the Bills of Exchange Act 1882." (TMA 1970, s.86(3))
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- Interest where payments on account of income tax reduced below final liability
"(4) Subsection (5) below applies where as regards a year of assessment—
(a) any person makes a claim under subsection (3) or (4) of section 59A of this Act in respect of the amounts (the section 59A amounts) payable by him in accordance with subsection (2) of that section, and
(b) an amount (the section 59B amount) becomes payable by him
(i) 3 in accordance with section 59B(3), (4) or (5) of this Act or
(ii) in accordance with section 59B(6) of this Act in respect of income tax assessed under section 29 of this Act.
(5) Interest shall be payable under this section as if each of the section 59A amounts had been equal to—
(a) the aggregate of that amount and 50 per cent of the section 59B amount, or
(b) the amount which would have been payable in accordance with subsection (2) of section 59A of this Act if the claim under subsection (3) or (4) of that section had not been made,
whichever is the less." (TMA 1970, s.86(4) - (5))
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Assumptions (both payments on account made but ignore CGT paid)
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"(6) In determining for the purposes of subsections (4) and (5) above what amount (if any) is payable by any person in accordance with section 59B(3), (4) or (5) of this Act or, in respect of income tax assessed under section 29 of this Act, in accordance with section 59B(6) of this Act—
(a) it shall be assumed that both of the section 59A amounts have been paid, and
(b) no account shall be taken of any amount which has been paid on account otherwise than under section 59A(2) of this Act or is payable by way of capital gains tax." (TMA 1970, s.86(6))
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- Remission of interest on late payments on account to the extent they exceed final income tax liability
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"(7) Subsection (8) below applies where as regards any person and a year of assessment—
(a) amounts (the section 59A amounts) become payable by him in accordance with section 59A(2) of this Act, and
(b) an amount (the section 59B amount) becomes repayable to him in accordance with section 59B(3), (4) or (5) of this Act.
(8) So much of any interest payable under this section on either of the section 59A amounts as is not attributable to the amount by which that amount exceeds 50 per cent of the section 59B amount shall be remitted." (TMA 1970, s.86(7) - (8))
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Compare payments on account to final income tax liability (exclude CGT)
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"(9) In determining for the purposes of subsections (7) and (8) above what amount (if any) is repayable to any person in accordance with section 59B(3), (4) or (5) of this Act, no account shall be taken of any amount which has been paid on account otherwise than under section 59A(2) of this Act or is payable by way of capital gains tax." (TMA 1970, s.86(9))
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- Interest on overdue income tax deducted at source
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"(1) Income tax which is assessable under Chapter 15 of Part 15 of ITA 2007 carries interest at the rate applicable under section 178 of the Finance Act 1989 from the date when it was due under section 951 of ITA 2007 until payment.
(2) Subsection (1) applies—
(a) whether or not an assessment is made, and
(b) whether or not income tax which is assessed has been paid when the assessment is made.
(3) Subsection (1) applies even if the date when the income tax should have been paid is a non-business day as defined by section 92 of the Bills of Exchange Act 1882." (TMA 1970, s.87(1) - (3))
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Late payment by a person who receives payments net of income tax deducted at source
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"(4) Subsection (5) applies to any income tax which—
(a) was payable under Chapter 15 of Part 15 of ITA 2007 (collection: deposit-takers, building societies and certain companies) in respect of payments within section 946 of that Act made in a return period,
(b) was not paid on the date when it was due under section 951 of that Act, and
(c) has subsequently been discharged or repaid under section 953 of that Act because the person who made the payments received payments on which it suffered income tax by deduction in a later return period.
(5) The income tax carries interest under subsection (1) from the date when it was due under section 951 of ITA 2007 until the earliest of—
(a) the date when the income tax was paid,
(b) the date when the person delivered a return for the later return period, and
(c) the expiry of 14 days after the end of that period,
but subsection (1) does not otherwise apply to the income tax.
(6) In this section “return period” means a period for which a return is required to be made under Chapter 15 of Part 15 of ITA 2007." (TMA 1970, s.87(4) - (5))
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- Interest on overdue corporation tax
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"(1) Corporation tax shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date when the tax becomes due and payable (in accordance with section 59D of this Act until payment.
(2) Subsection (1) above applies even if the date when the tax becomes due and payable (as mentioned in that subsection) is a non-business day within the meaning of section 92 of the Bills of Exchange Act 1882." (TMA 1970, s.87A(1) - (2))
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Carry back of loan relationship deficit or loss does not retroactively extinguish interest liability
"(4A) In a case where—
(a) there is for an accounting period of a company (“the later period”) a non-trading deficit on the company's loan relationships,
(b) as a result of a claim under section 389(1) or 459(1)(b) of CTA 2009 the whole or part of the deficit for the later period is set off against profits of an earlier accounting period (“the earlier period”), and
(c) if the claim had not been made, there would be an amount or, as the case may be, an additional amount of corporation tax for the earlier period which would carry interest in accordance with this section,
then, for the purposes of the determination at any time of whether any interest is payable under this section or of the amount of interest so payable, the amount mentioned in paragraph (c) above shall be taken to be an amount of unpaid corporation tax for the earlier period except so far as concerns interest for any time after the date on which any corporation tax for the later period became (or, as the case may be, would have become) due and payable as mentioned in subsection (8) below." (TMA 1970, s.87A(4A))
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"(6) In any case where—
(a) on a claim under section 37 of CTA 2010, the whole or any part of a loss incurred in an accounting period (the “later period”) has been relieved (whether under that section or section 42 of that Act) for the purposes of corporation tax against profits of a preceding accounting period (the “earlier period”),
(b) the earlier period does not fall wholly within the period of twelve months immediately preceding the later period, and
(c) if the claim had not been made, there would be an amount or, as the case may be, an additional amount of corporation tax for the earlier period which would carry interest in accordance with this section,
then, for the purposes of the determination at any time of whether any interest is payable under this section or of the amount of interest so payable, the amount mentioned in paragraph (c) above shall be taken to be an amount of unpaid corporation tax for the earlier period except so far as concerns interest for any time after the date on which any corporation tax for the later period became (or, as the case may be, would have become) due and payable as mentioned in subsection (8) below." (TMA 1970, s.87A(6))
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Tax treated as due after 9 months from the end of the accounting period
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"(8) In subsections (4), (4A) and (6) above, any reference to the date on which corporation tax for an accounting period became, or would have become, due and payable shall be construed on the basis that corporation tax for an accounting period becomes due and payable on the day following the expiry of nine months from the end of the accounting period." (TMA 1970, s.87A(8))
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- Interest on close company loans and benefits tax
"(3) For the purposes of section 87A of this Act as applied by subsection (1) above—
(a) the date when tax under section 455 of CTA 2010 became due and payable is that determined in accordance with subsection (3) of that section, and
(b) the date when tax under section 464A of CTA 2010 became due and payable is that determined in accordance with subsection (4) of that section.
(3A) If—
(a) there is such a repayment of the whole or any part of a loan or advance as is referred to in subsection (2) of section 458 of CTA 2010, or
(b) there is such a release or writing off the whole or any part of the debt in respect of a loan or advance as is referred to in that subsection,
interest under section 87A of this Act on so much of the tax under section 455 of CTA 2010 as is referable to the amount repaid, released or written off shall not be payable in respect of any period after the date on which the repayment was made or the release or writing off occurred.
(3B) If there is a payment which for the purposes of section 464B of CTA 2010 is a return payment in respect of a benefit conferred, interest under section 87A of this Act on so much of the tax under section 464A of CTA 2010 as is referable to the return payment is not payable in respect of any period after the date on which the return payment was made." (TMA 1970, s.109(3) - (3B))
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- Interest paid gross and not deductible
"(1) Interest payable under this Part of this Act—
(a) shall be paid without any deduction of income tax; and
(b) [...] shall not be allowed as a deduction in computing any income, profits or losses for any corporation tax purpose (but see also sections 54 and 869 of ITTOIA 2005 for corresponding rule for income tax purposes)." (TMA 1970, s.90(1) - square brackets refer to subsection 2 which is repealed)
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- Remission of interest where tax repaid
"(1) Where any amount of interest is payable under section 86 of this Act in relation to an assessment, and relief from tax charged by the assessment is given to any person by a discharge of any of that tax, such adjustment shall be made of the said amount, and such repayment shall be made of any amounts previously paid under that section in relation to the assessment, as are necessary to secure that the total sum, if any, paid or payable under that section in relation to the assessment, is the same as it would have been if the tax discharged had never been charged.
(1A) Where interest is payable under section 87A of this Act in respect of an amount of corporation tax for an accounting period, and relief from tax is given by a discharge of any of that corporation tax—
(a) such adjustment shall be made of the amount of interest payable under that section in respect of corporation tax for that accounting period, and
(b) such repayment shall be made of any amounts of interest previously paid under that section in respect of that corporation tax,
as are necessary to secure that the total sum (if any) paid or payable under that section in respect of corporation tax for that accounting period is the same as it would have been if the tax discharged had never been charged.
(1B) Subsection (1A) above has effect subject to section 87A(4), (4A), (4B), (6) and (7) of this Act." (TMA 1970, s.91(1) - (1B))
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"(2A) In any case where—
(a) relief from corporation tax is given to any person by repayment, and
(b) that tax was paid for an accounting period ending after the day which is the appointed day for the purposes of section 10 of the principal Act,
that person shall be entitled to require that the amount repaid shall be treated for the purposes of this section, so far as it will go, as if it were a discharge of the corporation tax charged on him for that period.
(3) Notwithstanding anything in the preceding provisions of this section, no relief, whether given by way of discharge or repayment, shall be treated for the purposes of this section as—
(a) ...
(b) affecting tax charged by any assessment to income tax made under Schedule A or Schedule D if either—
(i) …
(ii) it arises in connection with income taxable otherwise than under Schedule A or Schedule D, or
(iii) it relates to a source income from which is taxable otherwise than under Schedule A or Schedule D, or
(c) affecting tax charged at a rate other than the basic rate, the Scottish basic rate, a Scottish rate below the Scottish basic rate, the Scottish intermediate rate, the Welsh basic rate, the savings nil rate or the starting rate for savings on income from which tax has been deducted (otherwise than under PAYE regulations) or is treated as having been deducted, unless it is a relief from the tax so charged.
(4) For the purposes of this section a relief from corporation tax or capital gains tax shall not be treated as affecting tax charged by any assessment unless the assessment is to the same tax." (TMA 1970, s.91(2A) - (4))
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Does not apply to discharge of close company loan or benefit tax
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"(4) Section 91 of this Act shall not apply in consequence of any discharge or repayment of tax under section 458 or 464B of CTA 2010.
(5) For the purposes of the said section 91, a relief from tax under sections 455 to 459 or 464A and 464B of CTA 2010 shall not be treated as affecting tax charged by any assessment unless the assessment is to tax under that section." (TMA 1970, s.109(4) - (5))
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- Remission of interest if income/gain cannot be brought to UK
See TMA 1970 s.92
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SDLT
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- Interest on unpaid tax
"(1) Interest is payable on the amount of any unpaid tax from the end of the period of 30 days after the relevant date until the tax is paid.
(1A) But where the relevant date is determined by subsection (3)(aa), (aaa), (ab) or (c), and a return is required to be delivered before the end of the period of 14 days after that relevant date, interest is instead payable on the amount of any unpaid tax from the end of that period until the tax is paid.
(2) The Inland Revenue may by regulations amend subsection (1) or (1A) so as to make interest run from the end of such shorter period after the relevant date as may be prescribed or, if the regulations so provide, from that date." (FA 2003, s.87)
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"(7) Interest is calculated at the rate applicable under section 178 of the Finance Act 1989 (c 26) (power of Treasury to prescribe rates of interest)." (FA 2003, s.87)
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Relevant date
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See s.87(3).
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- Payment on account reduces interest
"(6) If an amount is lodged with the Inland Revenue in respect of the tax, the amount on which interest is payable is reduced by that amount." (FA 2003, s.87)
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IHT
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- Interest on IHT
"(1) If—
(a) an amount of tax charged on the value transferred by a chargeable transfer not within paragraph (aa) below and made after 5th April and before 1st October in any year and otherwise than on death remains unpaid after the end of the period ending with April in the next year, or
(aa) an amount of tax charged under Chapter 3 of Part 3 of this Act on the value transferred by a chargeable transfer remains unpaid after the end of the period of six months beginning with the end of the month in which the chargeable transfer was made, or
(b) an amount of tax charged on the value transferred by a chargeable transfer not within paragraph (a) or (aa) above remains unpaid after the end of the period of six months beginning with the end of the month in which the chargeable transfer was made, or
(c) an amount of tax chargeable under section 32, 32A, 79(3A) or 126 above or under Schedule 5 to this Act remains unpaid after the end of the period of six months beginning with the end of the month in which the event occasioning the charge occurs,
then, subject to subsection (1A) below it shall carry interest from the end of that period at the rate applicable under section 178 of the Finance Act 1989.
(1A) If, under section 230 above, the Board agree to accept property in satisfaction of any tax on terms that the value to be attributed to the property for the purposes of that acceptance is determined as at a date earlier than that on which the property is actually accepted, the terms may provide that the amount of tax which is satisfied by the acceptance of the property shall not carry interest under this section from that date.
(2) …
(3) Interest payable under this section shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes." (IHTA 1984, s.233)
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Special rules
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"(1) Section 233 above shall apply in relation to—
(a) the amount by which tax chargeable on the value transferred by a chargeable transfer made within seven years of the transferor's death exceeds what it would have been had the transferor died more than seven years after the transfer,
(b) …
as if the chargeable transfer had been made on the death of the transferor.
(1A) Section 233 above shall apply in relation to the amount (if any) by which—
(a) the tax chargeable on the value transferred by a chargeable transfer made under Chapter III of Part III of this Act within the period of seven years ending with the settlor's death,
exceeds
(b) what that tax would have been had the settlor died more than seven years after the date of the transfer,
as if the chargeable transfer had been made on the death of the settlor.
(2) Tax overpaid or underpaid in consequence of—
(a) section 146(1) above, or section 19(1) of the Inheritance (Provision for Family and Dependants) Act 1975 or
(b) the corresponding provision of the Inheritance (Provision for Family and Dependants) (Northern Ireland) Order 1979,
shall not carry interest for any period before the order there mentioned is made.
(3) Tax repayable on a claim under section 146(2), or 150 above shall carry interest (which shall not constitute income for any tax purposes) at the [rate applicable under section 178 of the Finance Act 1989]5 from the date on which the claim is made.
(4) Tax repayable under section 147(2) above shall carry interest (which shall not constitute income for any tax purposes) at the [rate applicable under section 178 of the Finance Act 1989 from the date on which the tax was paid; and tax charged by virtue of section 147(4) above shall carry interest at that rate from the end of the period mentioned in section 233(1)(b) above." (IHTA 1984, s.236)
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- Interest on IHT instalments
"(1) Where tax payable on the value transferred by a chargeable transfer—
(a) is payable by instalments under section 227 above and is attributable to the value of any shares, securities, business or interest in a business, or to value treated as reduced under Chapter II of Part V of this Act, or
(b) is payable by instalments under section 229 above,
it shall, for the purposes of any interest to be added to each instalment, be treated as carrying interest from the date at which the instalment is payable.
(2) Subsection (1) above shall not apply to tax attributable to the value of shares or securities of a company falling within paragraph (a) of subsection (3) below (not being tax attributable to value treated as reduced under Chapter II of Part V of this Act) unless it also falls within paragraph (b) or (c) of that subsection.
(3) The companies referred to in subsection (2) above are—
(a) any company whose business consists wholly or mainly of one or more of the following, that is to say, dealing in securities, stocks or shares, land or buildings, or making or holding investments;
(b) any company whose business consists wholly or mainly in being a holding company (as defined in section 1159 of and Schedule 6 to the Companies Act 2006 of one or more companies not falling within paragraph (a) above;
(c) any company—
(i) whose business is wholly that of a market maker or is that of a discount house and (in either case) is carried on in the United Kingdom, or
(ii) which is of a description set out in regulations under section 107(5) of the Finance Act 1986.
(4) In this section “market maker” means a person who—
(a) holds himself out at all normal times in compliance with the rules of The Stock Exchange as willing to buy and sell securities, stocks or shares at a price specified by him, and
(b) is recognised as doing so by the Council of The Stock Exchange." (IHTA 1984, s.234)
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VAT
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- VAT assessment interest
"(1) Subject to section 76(8), where an assessment is made under any provision of section 73 and, in the case of an assessment under section 73(1) at least one of the following conditions is fulfilled, namely—
(a) the assessment relates to a prescribed accounting period in respect of which either—
(i) a return has previously been made, or
(ii) an earlier assessment has already been notified to the person concerned,
(b) the assessment relates to a prescribed accounting period which exceeds 3 months and begins on the date with effect from which the person concerned was, or was required to be, registered,
(c) the assessment relates to a prescribed accounting period at the beginning of which the person concerned was, but should no longer have been, exempted from registration under paragraph 14(1) of Schedule 1, under paragraph 13 of Schedule 1A, under paragraph 8 of Schedule 3 or under paragraph 7 of Schedule 3A,
the whole of the amount assessed shall, subject to subsection (3) below, carry interest at the rate applicable under section 197 of the Finance Act 1996 from the reckonable date until payment.
(2) In any case where—
(a) the circumstances are such that an assessment falling within subsection (1) above could have been made, but
(b) before such an assessment was made the VAT due or other amount concerned was paid (so that no such assessment was necessary),
the whole of the amount paid shall, subject to subsection (3) below, carry interest at the rate applicable under section 197 of the Finance Act 1996 from the reckonable date until the date on which it was paid." (VATA 1994, s.74(1) - (2))
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Interest limited to final 3 years
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"(3) Where (apart from this subsection)—
(a) the period before the assessment in question for which any amount would carry interest under subsection (1) above; or
(b) the period for which any amount would carry interest under subsection (2) above,
would exceed 3 years, the part of that period for which that amount shall carry interest under that subsection shall be confined to the last 3 years of that period." (VATA 1994, s74(3))
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Interest to be paid by taxpayer where HMRC have overpaid interest
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"(6) Sections 74 and 77(6) apply in relation to assessments under subsection (1) above as they apply in relation to assessments under section 73 but as if the reference in subsection (1) of section 74 to the reckonable date were a reference to the date on which the assessment is notified." (VATA 1994, s.78A(6))
Limited to final 2 years
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"(7) Where by virtue of subsection (6) above any person is liable to interest under section 74—
(a) section 76 shall have effect in relation to that liability with the omission of subsections (2) to (6); and
(b) section 77, except subsection (6), shall not apply to an assessment of the amount due by way of interest;
and (without prejudice to the power to make assessments for interest for later periods) the interest to which any assessment made under section 76 by virtue of paragraph (a) above may relate shall be confined to interest for a period of no more than two years ending with the time when the assessment to interest is made." (VATA 1994, s.78A(7))
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Reckonable date
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"(5) The references in subsections (1) and (2) above to the reckonable date shall be construed as follows—
(a) where the amount assessed or paid is such an amount as is referred to in section 73(2)(a) or (b), the reckonable date is the seventh day after the day on which a written instruction was issued by the Commissioners directing the making of the payment of the amount which ought not to have been repaid or paid to the person concerned; and
(b) in all other cases the reckonable date is the latest date on which (in accordance with regulations under this Act) a return is required to be made for the prescribed accounting period to which the amount assessed or paid relates; and
(c) in the case of an amount assessed under section 73(7) the sum assessed shall be taken for the purposes of paragraph (b) above to relate to the period for which the assessment was made;
and interest under this section shall run from the reckonable date even if that date is a non-business day, within the meaning of section 92 of the Bills of Exchange Act 1882." (VATA 1994, s.74(5))
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No deduction of income tax
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"(7) Interest under this section shall be paid without any deduction of income tax." (VATA 1994, s.74(7))
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- Interest on amount shown on invoice as VAT
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"(4) Where an unauthorised person, as defined in paragraph 2(3) of Schedule 41 to the Finance Act 2008, issues an invoice showing an amount as being VAT or as including an amount attributable to VAT, the amount which is shown as VAT or, as the case may be, is to be taken as representing VAT shall carry interest at the rate applicable under section 197 of the Finance Act 1996 from the date of the invoice until payment." (VATA 1994, s.74(4))
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- Interest on joint and several liability of online marketplace operators
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"(1) If an amount assessed under section 77C is not paid before the end of the period of 30 days beginning with the day on which notice of the assessment is given, the amount assessed carries interest from the day on which the notice of assessment is given until payment.
(2) Interest under this section is payable at the rate applicable under section 197 of the Finance Act 1996." (VATA 1994, s.77D(1) - (2))
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Interest on penalties
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"A penalty under any of the provisions of Part II, IV or VA or this Part of this Act (other than section 98C), or Schedule 18 to the Finance Act 1998, shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date on which it becomes due and payable until payment." (TMA 1970, s.103A)
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"A penalty under this Part shall carry interest at the rate applicable under section 178 of the Finance Act 1989 from the date it is determined until payment." (FA 2003, s.88)
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No appeal to FTT regarding interest
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“The amounts assessed in respect of the unauthorised payments from the Scottish Equitable scheme under s 647 of ICTA clearly come within the scope of s 86 of the TMA and therefore interest is payable on them. There is no discretion on the part of the First-tier Tribunal to determine that interest should not be payable and the First-tier Tribunal made a clear error of law in doing so.” (HMRC v. Gretton [2012] UKUT 261 (TCC), §13).
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“As far as the items of interest are concerned I also agree that s 86 TMA contains no appeal right, at least not to this Tribunal. It is possible (and I say no more than that) that the amount of interest or the way it has been calculated could be challenged in collection proceedings in the County Court, but Mr Shah has paid the interest…[W]here the amounts are “self-assessment amounts”, interest accruing after 30 October 2011 falls within s 101 FA 2009 and not s 86 TMA. But s 101 does not contain an appeal right either.” (Shah v. HMRC [2015] UKFTT 555 (TC), §§28…29).
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“Disputes as to interest are not within the tribunal's jurisdiction. This was confirmed by a decision of the Upper Tribunal (Judge Herrington) in Revenue and Customs Commissioners v Gretton and another [2012] UKUT 261 (TCC). At [13] Judge Herrington indicated that there was no discretion on the part of the First-tier Tribunal to determine that interest should not be payable.” (Thompson v. HMRC [2014] UKFTT 826 (TC), §82)
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FTT making observations on interest
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“I wish to make one observation. I explained to Mr Bates that I fully expect HMRC to ensure that all the facts of this case are considered by HMRC’s “interest review unit”. That unit should consider whether there are factors in this case which should lead to a reduction in the interest charge, including the offer made by Mr Mursaloglu in December 2013 to settle for a sum which exceeded that eventually agreed under section 54…However, as with any other potential avenues of complaint which might be available, such a review would be a matter outside the jurisdiction of this Tribunal.” (Mursaloglu v. HMRC [2017] UKFTT 708 (TC), §§18 – 19, Judge Thomas Scott).
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Appeal against amount of interest on VAT
"(q) the amount of any penalty, interest or surcharge penalty specified in an assessment under section 76." (VATA 1994, s.83(q))
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HMRC interest review unit
"If tax is paid late we have a statutory obligation to charge interest.
There is no appeal route for disputes about interest. But we will, in certain circumstances, consider giving up some or all of the interest if a customer objects to the charge or a review identifies that a HMRC mistake or unreasonable contributed to some or all of the build-up of interest.
In the first instance you should deal with enquiries about, and objections to, an interest charge locally.
Exceptionally, you can cancel or revise a charge where this was made incorrectly. But only the Interest Review Unit (IRU) can agree to set aside the payment of a correctly raised interest charge.
...
The IRU will only accept cases where the interest charge is final that is it is not accruing." (DMBM404010)
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Interest compensates the government for loss of use of money
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"Any delay in making payment, regardless of the cause, is to the customer’s advantage, as the funds are available for their use for an extended period of time. So an interest charge is used to compensate the Government for loss of the use of the funds and to remove any benefit the customer has received, compared to those customers who did pay on time." (DMBM405030)
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- Unreasonable delay by HMRC that caused absence of payment
"It is impossible to give a full list of all the situations where the Interest Review Unit may consider giving up interest. The main considerations must be that:
- interest was increasing during the period involved, and
- HMRC was responsible for the conduct of the case during the period, and
- the delay was extensive and unreasonable in the circumstances, and
- it was only this delay that caused the absence of payment, and
- the customer was not aware that a debt existed, or might arise, that they should have paid or made a payment on account against.
So if the interest was building up already, or was going to build up, on a delayed payment as a result of the customer’s actions, then there is no reason for the Interest Review Unit to consider giving up interest. The customer was already going to be facing an interest charge. HMRC delay, no matter how long, did not cause the charge.
The question to ask for every case is, ‘would the interest charge still have existed if HMRC had not caused any unreasonable delay?’ If ‘yes’ then the interest charge should be upheld. If ‘no’ then consider giving up interest.
There may be situations where the interest is already building up when HMRC cause delay and this increases the amount of interest to be paid. The Interest Review Unit will only consider giving up or reducing interest for unreasonable delay on any amount of additional debt that the customer was unaware of or could not have reasonably foreseen arising." (DMBM405030)
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Interest is simple not compound​
"Late payment interest and repayment interest are calculated on a simple, not compound, basis. This means that interest is only calculated on the amount of the tax or penalty (late payment interest only), and not on interest that has already been charged or accrued." (CH140100)
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