If an instalment offer is the only feasible method of settlement you must calculate your suggested offer to include “forward interest” and include this figure on your Form 94NTC - see copy at CCM21360. Forward interest is not statutory interest, it is designed to compensate the Department for the delay in obtaining the monies. It is calculated by applying the current rate of interest for HMRC, plus 1%, to the total unpaid balance for half of the period of payment. You can find the current rate of interest on the Intranet, from the home page click on Library and then on Lists & Tables and then Interest Rates, or enter 'Interest Rates' in Local Search, or use the A- Z index. The current rate of interest is the same as for Income Tax Self Assessment. By including this amount in your settlement computations it therefore becomes part of the contract. The claimant has offered to pay a sum including the “forward interest” and the Department has accepted the offer.
Example - You are negotiating a settlement with Nicola. You have agreed that £4,100 is due. Nicola has no means of paying this in one lump sum so you agree she can pay £100 within 30 days and settle the balance over 24 months. If the interest rate in force at the time is 7% the forward interest is calculated as:
£4,000 x 8% x 24/12 x ½ = £320
The total settlement will therefore be £4,420 with
£100 payable in 30 days and £4320 spread over 24 months.
The use of ‘half the period’ reflects the fact
that the balance outstanding is progressively reducing.
In addition to charging forward interest, you might have to
include statutory interest in your settlement computation. Where
overpaid credits are recoverable in-year they carry statutory
interest from 30 days after the notice of the revised decision. If,
for example, you have agreed that Nicola has been overpaid credits
of £3700 and the revised decision letter went out on 1
September, the statutory interest runs on the amount of £3700
from 1 October. If you have only reached the stage of discussing
the settlement proposals by the end of November and the intention
is the first instalment will be paid round about 1 January of the
following year, then you will also have to include statutory
interest. This will run on the £3700 from 1 October to the
date of the expected first payment.
Further guidance can be found regarding statutory interest in
CCM Chapter 10 - Penalties and Interest (
CCM10470)
