Interest on late paid tax

Produced by Tolley in association with Philip Rutherford

The following Owner-Managed Businesses guidance note Produced by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Interest on late paid tax
  • Introduction
  • Coronavirus (COVID-19) ― waiver of interest on the second income tax payment on account for 2019/20 and VAT liabilities arising between 20 March 2020 and 30 June
  • Income tax self assessment
  • Inheritance tax
  • PAYE / NIC
  • Payment dates
  • VAT
  • Corporation tax
  • Mitigation of interest

Interest on late paid tax

Introduction

Interest on late paid tax is a compulsory charge set out inlegislation 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.

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 GOV.UK website.

Interest does not accrue on late paid interest itself, ie it is simple interest rather than compound interest.

For example, if the interest rate is 2.6% and a taxpayer was due to pay £10,000 on 1 January but did not pay it until 21 January, an interest charge of £14.25 arises (ie £10,000 x 20/365 x 2.6%).

Overpayments of tax made by the taxpayer to HMRC attract interest, but at lower rate than those on underpayments of tax. See the interest rate for overpayments on the GOV.UK website.

Late payment of tax might also attract a penalty, see the Late payment penalties under self assessment and Late payment penalties for PAYE / NIC guidance notes.

Coronavirus (COVID-19) ― waiver of interest on the second income tax payment on account for 2019/20 and VAT liabilities arising between 20 March 2020 and 30 June

As per the guidance on the GOV.UK website, the second self assessment payment on account for the 2019/20 tax year is effectively deferred from 31 July 2020 to 31 January 2021. This means that the 2019/20 balancing payment due by 31 January 2021 is the total income tax, capital gains tax, Class 2 and Class 4 NIC due for the tax year less the first payment on

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