SDLTM85960 - Compliance: Interest

Interest on unpaid tax: Tax held on account

If an amount has already been lodged with HM Revenue & Customs in respect of tax payable the amount on which interest is payable should be reduced by that amount. Payments on account sometimes cause difficulties. The strict rule is that interest is chargeable on a specific amount of tax from the relevant 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, assessment by assessment, the payments on account should be allocated against the interest- bearing liabilities in chronological order.

During the course of an enquiry it is possible for the purchaser to make a payment on account against a jeopardy amendment under FA03/SCH10/PARA17 which exceeds the liability on that assessment.

In such a case, the excess payment is to be treated for interest purposes as having been paid on account against other interest-bearing liabilities, thus giving the purchaser a greater measure of relief than would a repayment supplement calculation.