COM80070 - Interest: how interest is calculated: credit / debit interest calculation by COTAX

COTAX automatically calculates credit interest (Word 34KB) / debit interest (Word 31KB) 

• When the due date (Word 49KB) has passed

• A Self Assessment has been recorded

• The Credit / Debit Interest Indicator (CDII) (Word 29KB) is set to ‘Y’

• There is a ‘Date Struck Off’ on record and this date has passed

You must do the calculation clerically where credit /debit interest is to be given before the normal due date. For further information see subject ‘Clerical Calculation of Credit / Debit Interest’ (COM80080) in this section.

Company is not a quarterly instalment case

If the company is not required to make quarterly instalments payments (Word 42KB) credit interest is calculated to the normal due date from the later of

• The first quarterly instalment due date (Word 42KB) (or what would be that due date if the company were liable to make such payments)

• The first EDP (Word 41KB) (effective date of payment) on record

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Company is a quarterly instalment case

Where the company is identified as a QIP case (the Quarterly Instalment Payment (QP) signal is set to Y), then both credit and debit interest are calculated on each quarterly instalment. Credit and debit interest is calculated on the overpaid or underpaid amount

• From the first quarterly instalment due date for the AP for that quarter

• The date on which the over / underpayment no longer exists (another payment or repayment is made or a later instalment becomes due)

At this point COTAX recalculates how much that quarter is overpaid or underpaid. It continues to calculate credit or debit interest on this new amount until any of the following happens

• A further payment is made
• A repayment is made

• The next quarterly instalment becomes due

COTAX continues to review the tax paid at the time of each ‘event’ (payment, repayment, instalment due date) on the record. This is compared with the amount that the company should have paid at that time and Credit or Debit interest is calculated on the over or under-paid balance. COTAX continues to do this until the normal due date is reached. It calculates credit / debit interest up to the normal due date inclusive.

However, if the company’s accounting period is linked to an ‘open’ ‘Group Payment Period (Word 27KB) for a Group Payment Arrangement (Word 33KB) credit / debit interest are not calculated and posted until the Group Payment Period is shown as ‘cleared’. For more information see section ‘Company Taxation Overview’ (COM30000) in business area ‘Background’ or section ‘Group Payment Arrangements’ (COM96000) in business area ‘Payments’.

Notes:

Detailed worked examples of the calculation of credit and debit interest are available in the Company Taxation Manual (CTM) at CTM92730.

For a list of forms relevant to this subject, see COM80011.

For a list of functions to use in particular situations, see COM80012.

For legislation applying to this subject, see COM80013.