Section 2 - Interest, Surcharges and Penalties

Interest

Interest is automatically charged on tax that is paid late. The balance of any tax due for a year is due by 31 January following the end of the tax year.

For 2003/04 the tax is due by 31 January 2005. You may also have to pay payments on account.

If we tell you at the end of our enquiry that you owe us more tax you will have 30 days to pay that tax, or until the normal payment date of 31 January if this is later.

Although you have 30 days to pay, the tax was originally due at the proper time and interest will run on any payment you make after 31 January following the end of the tax year

Examples:

• If our enquiry into your 2003/04 return ends in December 2004 you have until 31 January 2005 to pay any extra tax. If you pay by 31 January 2005 you will not be charged interest unless you had payments on account to pay and you were late with these.
• If you receive our letter telling you the enquiry into your 2003/04 return is complete on 15 September 2005 you must pay any extra tax by 15 October 2005 and interest will run from 1 February 2005 until we receive your payment.

Surcharges

If you pay tax more than 28 days late you will have to pay a surcharge. The surcharge is 5% of the tax you owe.

Where you owe extra tax because of an enquiry the 28 days starts after the 30 days we give you to pay the tax. If you must pay the tax by 15 October 2005 a surcharge will arise on any amount still unpaid after 12 November 2005.

A further 5% surcharge arises on tax paid more than 6 months late.

Penalties

You may have to pay a penalty if

• you send in your tax return late
• we did not ask you to complete a tax return and you did not then tell us that you had income or gains that should be taxed
• we find something wrong with your tax return, or claim, during our enquiry.

We can only seek penalties for incorrect tax returns, or claims, if tax is underpaid and the error was due to negligence or fraud. More information is available in IR160.

When calculating any penalty, we will take into account

• the extent to which you voluntarily disclosed anything that was wrong
• your help in concluding our enquiries, and
• the seriousness of your errors or omissions.

You should tell us about any matters you think are relevant when we are working out any penalty that may be charged.

We will try to agree a contract settlement on the amounts of tax, interest, surcharge and penalties that are due from you. If we cannot reach an agreement, we may formally determine the penalty we think is appropriate. We will also, where necessary, determine the amount of surcharge that may be due.

You have the right to ask the Appeal Commissioners to hear an appeal against

• any penalty determination, and
• any surcharge, on the grounds that you had a reasonable excuse for not paying the tax on time.

The way we work out penalties is set out in our leaflet IR160 'Enquiries under Self-Assessment. How settlements are negotiated'. If you do not understand how we have calculated interest, surcharge or penalties, or why they are due, you should ask your professional adviser, or us or read our leaflet IR160.

We can also charge penalties if you do not co-operate with our enquiries. If you do not send us information we have requested by a formal notice, you may have to pay penalties. For more information on these penalties, see What Happens if you do not co-operate.

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