Interest and penalties
We charge interest on late instalment payments.
We calculate interest only:
- after the normal due date (which is nine months and one day after the end of the accounting period) has passed, and
- after a company has delivered its tax return, or
- if it fails to deliver its return, after we have made a determination of its tax liability.
We charge interest on all tax paid late, and give interest calculated from the first instalment date on tax overpaid or paid early,. Interest paid by us to companies is chargeable to tax, and interest companies pay us is deductible for tax purposes. Example 7 below shows how we calculate the interest.
Example 7
A large company, with no ring fence liability, has an accounting period from 1 January to 31 December. It delivers its company tax return showing a final tax liability of £120 million. It reviews the estimate of its final liability at regular intervals and, when appropriate, adjusts its instalment payments (or, if necessary, makes top-up payments) in order to minimise any interest charge:
- Column 1 shows the company's changing estimate of its final total liability.
- Column 2 shows the actual payments it makes.
- Column 3 shows the correct instalment amounts, based on the actual final liability.
Company's estimate |
Payments made |
Correct instalment liability |
|---|---|---|
Estimate £80m |
14 Jul £20m |
IP1 (due 14 Jul) £30m |
Estimate £110m |
14 Oct £35m |
IP2 (due 14 Oct) £30m |
Estimate £130m |
1 Nov £10m* |
|
Estimate £140m |
14 Jan £40m |
IP3 (due 14 Jan) £30m |
Estimate £120m |
14 Apr £15m |
IP4 (due 14 Apr) £30m |
* this is a top-up payment as the company thinks its liability may be higher than it originally estimated
Interest will be charged or paid as follows:
- From 14 July to 13 October, the company paid £20 million against a correct instalment liability of £30 million. Late payment interest will be charged on £10 million from 14 July to 13 October.
- From 14 October to 31 October, the company paid £55 million against a correct instalment liability of £60 million. Late payment interest will be charged on £5 million from 14 October to 31 October.
- From 1 November to 13 January, the company paid £65 million against a correct instalment liability of £60 million. Interest will be credited to the company on £5 million from 1 November to 13 January.
- From 14 January to 13 April, the company paid £105 million against a correct instalment liability of £90 million. Interest will be credited to the company on £15 million from 14 January to 13 April.
- On 14 April, the company makes its final payment of £15 million, bringing its total payments to £120 million, which is its correct liability, so no further interest is due.
Different rates of interest apply for the period from the due date for the first instalment to the normal due date for Corporation Tax (nine months and one day from the end of the accounting period).
After this period interest rates will change to those that apply to companies outside the Instalment Payment system. This two-tier system takes into account the fact that companies will be making their instalment payments based on estimated figures but, by the time of the normal due date, should be fairly certain about the amount of their liability.
A penalty may be charged if a company deliberately fails to make instalment payments, or deliberately makes instalment payments that are too small. Like interest, the penalty will be charged only after a company has delivered its tax return and the normal due date has passed.
Groups of companies
Group companies can elect to surrender overpayments between group members, offsetting an amount overpaid by one company against an amount unpaid by another company in the group.
We also have Group Payment Arrangements, which allow groups to make instalment payments on a group-wide basis, rather than company by company. If you want more information about Group Payment Arrangements, please contact:
Group Payment Team
Banking Operations
St Mungos Road
Cumbernauld
Glasgow
G67 1YZ.
Tel: 01236 785 499
Fax: 01236 785 353.
