CCM10410 - Penalties and Interest: Interest on Penalties - 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(This text has been withheld because of exemptions in the Freedom of Information Act 2000)
Example: 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 3%, the interest charge will be:
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.
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 example 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.
