CCM10410 - Penalties and Interest: Interest on Penalties – lump sum penalty-only letter of offer

In most cases involving penalties you will be seeking a letter of offer (see CCM8740 to CCM8810), and until the offer is accepted it does not become due and payable. Where you allow 30 days for payment this puts the claimant in the same position as a claimant who receives a formal penalty determination. If you are allowing a longer period for settlement you will need to consider the interest position.

For example, if you are inviting a letter of offer in which you will allow the claimant more than 30 days to pay the penalty you need to charge interest. You always disregard the first 30 days as they are entitled to that period for payment. The interest is charged at the appropriate rate for late payment as at the time you calculate your settlement

You are inviting a letter of offer from Suzi to cover a penalty of £1,500. Suzi needs 120 days for payment as she cannot get immediate access to her savings. You and your manager agree 120 days is reasonable in the circumstances. If the interest rate is 6.5%, the interest charge will be:

£1,500 x 6.5% x 90/365 = £24

You must include the interest on the form 94NTC on which you calculate the settlement.

If interest is to be included in a penalty only letter of offer, you will need to include the words regarding interest. The template for the letter of offer provides these words as optional text.