SDLTM82690 - Compliance: Concluding an enquiry

Contract settlements: Introduction: Interest

At the time the purchaser is provided with the calculation of tax lost, the interest arising should also be calculated. See SDLTM85900. Any such interest should be calculated up to the anticipated date of payment in the settlement offer.

The compliance caseworker may need to emphasise to the purchaser that interest is not a penalty. Interest is charged on tax which is paid late in order to

• encourage payment at the right time
• compensate the Exchequer for the delay in payment
• remove the advantage which those who pay late would otherwise enjoy over those who pay at the right time

Interest is charged at a rate based on a broad average of the net cost of borrowing and provides normal commercial restitution for the delay – just as repayment supplement/interest is intended to compensate the purchaser.

Interest should be calculated as though the correct liabilities had been assessed and had become final.

Unless all the tax has been paid on account, the likely date of payment will have to be estimated. Interest should be calculated up to that date. See SDLTM85960.

Any material delay in settlement will normally necessitate revision of the interest figure and it may be worthwhile to give a daily or weekly figure for the accruing interest when the computation is issued.

Payments on account

Payments on account can sometimes cause difficulties. The strict rule is that interest is chargeable on a specific amount of tax from the due date to the date of payment. However, it is usually convenient to calculate the interest as if nothing had been paid on account and then deduct a credit by reference to the amount paid.

This method produces the correct answer where

• the payment does not exceed the interest-bearing tax
• none of the tax which it covers became due after the payment was made

If either of these factors is really significant a more precise calculation should be made.