CCM10420 - Penalties and Interest: Interest on Penalties – Instalment penalty-only letter of offer

If you are inviting a penalty-only letter of offer that will be paid by instalments you need to calculate forward interest. This is not statutory interest but is a measure of compensation for HMRC having to wait longer for its money. Forward interest should be calculated in accordance with the guidance in CCM Chapter 8 - Closing the Examination CCM8450.

It is possible that a penalty only instalment letter of offer provides for an initial payment some months away followed by regular instalments. In these, exceptional circumstances, you will have to calculate the statutory interest in accordance with the second example at ( CCM10410) above, and then also include forward interest in respect of the instalment payments. The letter of offer will need to include reference to the interest. The template for the letter of offer provides these words as optional text.

Example: You are inviting a letter of offer from Miguel to cover a penalty of £1,500. Miguel needs 100 days to get together £500 to make the initial payment and he will then pay the remaining £1000 over the next 10 months. Your letter of offer will include both statutory interest and forward interest.

Statutory interest – in respect of the £500 – see CCM10410
Forward interest – in respect of the £1,000 – see CCM8450