Interest on tax overpaid by companies

Produced by Tolley

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

  • Interest on tax overpaid by companies
  • When is interest payable by HMRC?
  • Types and rates of interest payable to companies
  • Calculation of the interest refund
  • Credit interest
  • Repayment interest
  • Loss carry back claims and interest
  • Trading loss claims
  • Non-trading deficit claims

Interest on tax overpaid by companies

A harmonised regime is in place in respect of interest accrued 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 by companies guidance note.

It was originally intended that the harmonised interest regime would apply across all taxes; however, to date, corporation tax remains outside its scope. Nonetheless, 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).

The current and historic rates of interest applied by HMRC to refunds of corporation tax are provided on the GOV.UK website.

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

When is interest payable by HMRC?

The most common scenario in which interest is 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. However, a payment of interest can also arise to companies in respect of the following:

  1. repayment of income tax deducted at source

  2. payment of an R&D tax credit

  3. payment of a land remediation tax credit

  4. payment of a credit arising from a claim for one of the creative sector tax reliefs, such as the film tax credit

  5. payment of first-year tax c

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