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 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.

Harmonised legislation was introduced in 2009 to:

  1. set statutory calculations of interest for late payment of tax and repayment of tax that would apply to all taxes, and

  2. standardise the rules in relation to the period over which the interest applies and the amounts subject to interest

Although the rules were eventually meant to apply to all taxes, the appointed day from which the rules were applied was staggered. For some taxes, the harmonised rules were never introduced.

It is now the case that the standardised rate of interest for late payment of tax and repayment of tax applies to all taxes. Any taxes that were not within these rules were so brought in by FA 2019, s 88.

As such, the interest rates given on the GOV.UK website apply to all the direct taxes discussed below. That web page shows the current and historic interest rates. The interest rates that apply to VAT are given on a separate page on the GOV.UK website.

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

In terms of the harmonised rules for the period over which the interest applies and the amounts subject to interest, these do not apply to all taxes. In relation to the

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