Interest on late paid tax

By Tolley in association with Philip Rutherford
Corporation_tax_img10

The following Corporation Tax guidance note by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Interest on late paid tax
  • Introduction
  • Income tax self assessment
  • Inheritance tax
  • PAYE / NIC
  • VAT
  • Corporation tax
  • Mitigation of interest

Introduction

Interest on late paid tax is a compulsory charge set out in legislation to reflect the interest which would have accrued to the Exchequer had the correct amount of tax been paid at the right time.

From April 2010, a single rate of simple interest on late payment of tax applies across all taxes, with the exception of corporation tax.

FA 2009, Sch 53

Interest accrues from the date on which the payment was due until the date on which the payment is made. It should be calculated on a daily basis. It accrues at the HMRC published rate of interest. The historic rates , along with the current rate  of interest on late payments can be found on the HMRC website.

FA 2009, s 101(3)

Interest does not accrue on late paid interest, ie the interest is calculated as simple interest rather than compound interest.

For example, if a taxpayer was due to pay £10,000 on 1 January but does not pay it until 21 January, an interest charge of £17.80 arises (ie £10,000 x 20/365 x 3.25% (current rate ― increased from 3% from 21 August 2018)).

Overpayments of tax made by the taxpayer to HMRC attract interest, but at lower rate than those on underpayments of tax.

Late payment of tax might also attract a penalty, see the Late payment penalties for income, capital gains and corporation tax and Late payment penalties for PAYE / NIC guidance notes.

Income tax self assessment

Interest is chargeable on the late payment of any amount due on the basis of the self assessment return, including capital gains tax and Class 4 national insurance contributions. Unlike penalties for late paid tax, interest also accrues on late payment of payments on account and balancing payments.

Where an amendment is made to a

More on Penalties and interest on late paid tax: