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Interest is computed automatically on the client account. Interest rates are set by HMRC. The computation is on a daily basis.
In most cases the calculation is fairly simple. The interest runs from the day that the payment was due. For example a balancing payment of £10,000 due on the 31 January 2004 remains outstanding and the report is run on 31 December 2004.
Period |
Days |
Interest rate |
Amount |
|
31/01/2004 to 05/09/2004 |
219 |
6.50% |
£448.77 |
|
10/09/2004 to 31/12/2004 |
23 |
7.50% |
£271.72 |
|
|
|
Total |
£720.49 |
Note: interest still running today
Interest can also be charged on payments which have been overpaid and yet to be paid by HMRC. For example a payment of £12,500 was made on the 01 October 2004, which later was accompanied by an amended return showing a liability of £10,000 on 31 December 2004. A report is run on 31 January 2005 showing an outstanding repayment of £2,500.
Period |
Days |
Interest rate |
Amount |
|
01/10/2004 to 31/01/2005 |
123 |
4.00% |
£33.61 |
|
|
|
Total |
£33.61 |
Note: interest still running today
In the instants of 'large' companies where they are required to make instalments payments, interest is charged to at a special rate to unpaid instalments until nine months after the end of the accounting period. After this date the normal rate of interest is applied to overdue corporation tax, until the tax is paid. For example, for the year ended 31 March 2010, instalment payments of £110,000 is made on the four due dates. On 3 September 2010, the tax liability is finally agreed at £524,800 and a balancing payment of £84,800 is made on 10 Septmber 2011.
Period |
Days |
Interest rate |
Amount |
|
14/10/2009 to 14/01/2010 (1st instalment) 131,200 - 110,000 = £21,200
|
93 |
1.50% |
£80.80 |
|
15/01/2010 to 13/04/2010 (1st & 2nd instalment) 262,400 - 220,000 = £42,400
|
89 |
1.50% |
£154.66 |
|
14/04/2010 to 13/07/2010 (1st, 2nd, and 3rd instalment) 393,600 - 330,000 = £63,600
|
91 |
1.50% |
£237.20 |
|
14/07/2010 to 31/12/2010 (1st, 2nd, 3rd and 4th instalment) 524,800 - 440,000 = £84,800
|
171 |
1.50% |
£594.30 |
|
01/01/2011 - 10/09/2011 (Normal due date for payment - 1 January 2011) 524,800 - 440,000 = £84,800
|
252 |
3.00% |
£1,751.60 |
|
|
|
Total |
£2,818.56 |
Evidently, interest is charged on excess instalment payments made at a special rate until nine months after the end of the accounting period concerned and a lower rate applies to repayments made after that time. For example, for the year ended 31 March 2010, instalment payments of £143,000 is made on the four due dates. On 3 September 2011, the tax liability is finally agreed at £506,800 and £65,200 is repaid on 22 September 2011.
Period |
Days |
Interest rate |
Amount |
|
14/10/2009 to 13/01/2010 (1st instalment) 126,700 - 143,000 = £16,300
|
91 | 0.5% | £(20.32) |
|
14/01/2010 to 13/04/2010 (1st and 2nd instalment) 253,400 - 286,000 = £32,600
|
90 |
0.5% | £(40.19) |
|
14/04/2010 to 13/07/2010 (1st, 2nd, and 3rd instalment) 380,100 - 429,000 = £48,900
|
91 | 0.5% | £(60.96) |
|
14/07/2010 to 31/12/2010 (1st, 2nd, 3rd and 4th instalment) 506,800 - 572,000 = £65,200
|
169 | 0.5% | £(150.94) |
|
01/01/2011 to 21/09/2011 (Normal due date for payment - 1 January 2011) 506,800 - 572,000 = £65,200
|
264
|
0.5% | £(235.79) |
|
|
|
Total |
£(508.20) |