Interest on tax overpaid

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Interest on tax overpaid
  • When is interest repayable?
  • Types and rates of interest
  • Calculation of interest refund
  • Effect of loss carry back claim

Finance Act 2009 introduced a harmonised regime in respect of interest on late payments of tax and on the refund of overpayments of tax. The rules applicable to late and underpaid tax are set out in the Interest on tax underpaid guidance note. It was originally intended that the FA 2009 harmonisation would apply across all taxes. However, to date, corporation tax remains outside the scope of the harmonised interest regime. Whilst the FA 2009 regime does not apply to corporation tax, the current formula for determining the rates applicable to overpaid corporation tax and the rate for those taxes and duties within the harmonised interest regime is the same (see below). Consequently, the rate for overpayments on both is currently 0.50%. The current and historic rates of interest applied by HMRC to refunds of corporation tax are provided on the GOV.UK website .

FA 2009, s 102, Sch 54

See Simon’s Taxes A4.629 (subscription sensitive) for a list of taxes and duties covered by the FA 2009 interest rules and their respective commencement dates.

When is interest repayable?

Whilst the most obvious reason for interest being paid to a company by HMRC is where the corporation tax liability of a company has been paid early or where an overpayment of corporation tax has been made, there are other circumstances where interest can arise. A repayment of interest can also arise to companies in respect of the following:

  • a)repayment of income tax deducted at source
  • b)payment of R&D tax credit
  • c)payment of land remediation tax credit

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