CTM92670 - CTSA: quarterly instalments: credit interest

When a company makes quarterly instalment payments that turn out to have been unnecessary or excessive it receives 'credit interest' on the excess.

Credit interest runs from the date on which the overpayment arises (or from the due date for the first instalment payment, if later) to the earlier of:

• the date on which the overpayment is extinguished (for example, because a later instalment has become due or because of a repayment of tax),

and

• the normal due date (nine months and one day after the end of the accounting period).

Credit interest is given at a higher rate than repayment interest under ICTA88/S826.

Regulation 8 amends ICTA88/S826 to provide for credit interest for both:

• large companies, for early payment or overpayment of instalments,

and

• other companies, for early payments generally.

Credit interest can never run from a date earlier than the due date for the first instalment payment.

If the company is not required to pay by instalments, 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.

Like all interest payable under Section 826 for accounting periods ending on or after 1 July 1999, credit interest is taxable in computing profits for CT purposes (FA98/S34, see CTM92320).

Regulation 8 of the Taxes (Interest Rate) (Amendment No 2) Regulations 1998 amends the Taxes (Interest Rate) Regulations 1989 by providing for credit interest to run at a higher rate than repayment interest.

The formula for credit interest is reference rate minus 0.25%. The rate for repayment interest for CTSA accounting periods is reference rate minus 1%.