Common Period Rules
Note: The common period rules apply only to Self
Assessment and Corporation Tax
The common period rules were developed following the
introduction of differential interest rates for the charging of
interest on late payment and paying interest on overpayments. Prior
to the introduction of differential rates the rate of interest for
late payments and interest paid on reallocations and repayments was
the same.
For those years that the rates were the same, if a
reallocation from one charge to another involved the calculation of
repayment interest on the overpayment and late payment interest
when allocating the overpayment to the second charge the common
period need not be addressed. In these circumstances the customer
will receive an amount of repayment interest equivalent to the late
payment interest charged and is not disadvantaged.
For those years that differential rates apply, when a
reallocation is being made from one charge to another and the
receiving charge is already overdue the common period rule must be
applied. For example if today’s date is the 1 June 2007 and
an overpayment has arisen on which repayment interest is being
calculated from 15 March 2007, if another charge is outstanding and
was due for payment on the 1 May 2007 the repayment interest on the
overpayment will be calculated to 1 May 2007. Also the effective
date of payment for the amount, or amounts, making up the
overpayment are amended to 1 May 2007. This ensures that in any
future reallocation/ repayment there is no duplication of repayment
interest. This process is different for reallocations in SAFE as
the EDP is not changed but the payment is ‘noted’ with
the details of any period for which repayment interest has been
calculated.
The purpose of applying the common period rule is to prevent
a situation where a customer, who has overpaid and also has an
outstanding debt, does not incur a net interest charge, being the
difference between the late payment interest and the repayment
interest on the amount to be reallocated. The common period is the
time during which repayment interest due on an overpayment overlaps
the period of accruing interest on the charge receiving the
overpayment.
