Interest on late paid tax

By Tolley in partnership with Philip Rutherford
Personal_tax_img6

The following Personal Tax guidance note by Tolley in partnership 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.

A new and harmonised regime was introduced in FA 2009 in respect of interest for the late payment of tax to apply across all taxes, with the exception of corporation tax. The new regime for interest on late paid tax applies from April 2010. The rules apply a single rate of simple interest on late payments.

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 £16.44 arises (ie £10,000 x 20/365 x 3% (current rate)).

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 tax, capital gains tax 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

More on Penalties and interest on late paid tax: