COM95030 - Payments: quarterly instalment payments: credit / debit interest
'Credit Interest' and 'Debit Interest' are the Departmental terms for interest payable to / chargeable from Quarterly Instalment Payment (QIP) cases during the QIP period from the first instalment due date to the normal due date.
Credit interest is
- Paid under S826 ICTA 1988 (as extended by Regulation 8 of the CT (Instalment Payments) regulations 1998 (SI 1998 No 3175)
- Also payable to non-QIP cases on tax paid before the normal due date. Credit interest cannot run from a date earlier than what would be the first instalment date if it were liable to make Quarterly Instalment Payments
Debit interest is charged under S87A TMA 1970 (as extended by Regulation 7 of the CT (Instalment Payments) regulations 1998 (SI 1998 No3175).
Credit / debit interest is not charged on either
- Penalties or interest itself
- Tax which is stood over or suspended
It is the value of the Quarterly Instalment Payment (QIP) signal and nothing else that determines how COTAX treats the AP for credit / debit interest purposes.
Where the company is identified as a QIP case (the Quarterly Instalment Payer signal (Word 31KB) is set to Y), Debit and Credit Interest are automatically calculated (unless the Credit / Debit Interest Indicator (CDII) (Word29KB) is set) when
- A company has filed its self assessment, or we have made a Revenue Determination (Word 29KB) of its CT liability
- The normal CT due date (nine months and one day after the end of the AP) for the AP has passed
However, if the company's accounting period is linked to an open' Group Payment Period' for a Group Payment Arrangement (Word 33KB)
- Credit / debit interest are not calculated and posted until the Group Payment Period is 'cleared'. For more information see COM96000 onwards
The tax paid at the time of each 'event' on the record (payment, repayment, instalment due date) 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. See COM80000 onwards. You can view the automatic calculation of Credit / Debit interest in function DINT (Display Interest Computation).
When a company makes payments which are early or excessive Credit Interest runs for every day from
- The date on which the overpayment arises (or the due date for the first instalment payment if this is later)
To the earlier of
- The date on which the overpayment is extinguished (repaid or a later instalment becomes due)
- The CT normal due date
The EDP for credit interest is always the normal due date for the AP.
Note: Credit interest never runs from a date earlier than the due date for the first instalment payment.
Credit Interest is paid at a higher rate than repayment interest (Word 80KB) and is taxable in computing profits for CT purposes like other forms of interest receivable. Repayment Interest is not given on Credit Interest.
Where Credit Interest originally calculated and posted requires amendment downwards, usually because of an increase in the tax liability in a QIP case, automatic processing will identify the situation and amend the interest charge. The amount is shown as a negative credit interest posting.
When a company makes payments which are late or inadequate Debit Interest runs for every day from the
- Instalment due date
To the earlier of
- Date the underpayment is extinguished (paid or a later instalment becomes due)
- Normal CT due date
Debit Interest is payable at a lower rate than late payment interest (Word 27KB) and is deductible in computing profits for CT purposes like other forms of interest payable.
Detailed worked examples of the calculation of Credit and Debit Interest are available in the Company Taxation Manual (CTM) at CTM92710-92730.
Credit / Debit interest objections should be referred to Banking Operations for attention where the AP is not, and was not previously, working with the Recovery Office. For more information see COM82000 onwards.
Overpayments and underpayments of CT that exist beyond the normal due date attract repayment interest and late payment interest respectively.
Where Credit Interest is repaid it is separately identified. If Debit Interest is charged, paid then reduced and the excess repaid, it is separately identified from any late payment interest being repaid.
Where the Credit / Debit Interest Indicator (CDII) signal is set, COTAX does not calculate Credit or Debit Interest automatically. Banking Operations or the Debt Management Office raise the charge using Function RMIC (Raise Manual Interest Charge). You can calculate Credit / Debit /Charge interest on notional amounts and dates using function CINT (Calculate Interest). Calculations made using this function do not use any data from a COTAX record and are not posted to a COTAX record.
For more information see COM80000 onwards.
The CDII signal may be set by
- Banking Operations or the Debt Management Office using Function RAPP (Revise AP Pursuit)
- The Technical Caseworker using Function MAPS (Maintain AP Signals)
The Technical Caseworker needs to set the CDII signal where, for example
- Accelerated payments are agreed. For more information see COM95010
- Whenever it is recognised that COTAX will use one or more incorrect instalment dates in the calculation of Credit and / or Debit Interest for an AP
Function VPPD (View Payment and Posting Details) Summary screen displays the total amount of interest (Debit and late payment) raised automatically and clerically under ‘Net Charge’ ‘Interest’. Credit interest is included under ‘paid’ ‘Tax’. On the Postings screen Credit and Debit Interest type postings are identified by the abbreviations ICR and IDB respectively.
The Notes column on VPPD, View AP Postings screen, identifies the operator who raised or amended a clerical interest charge. Credit Interest accrual details can be viewed by selecting an ICR posting on the Postings screen.
Credit and Debit Interest are not separately distinguishable in payment applications and reconciliation statements. Credit Interest is aggregated with payments and may form part of an overpayment. Debit Interest is aggregated with late payment interest and may form part of an underpayment.
For a list of functions to use in particular situations, see COM95011.
For legislation applying to this subject, see COM95012.