Chapter 7 Adjustments to interest payments
7.1 Incorrect treatment of payments of interest
7.2 What deposit-takers can do to adjust interest payments
7.3 Adjustments where interest has been wrongly calculated
7.4 Adjustments and the CT61 Return
7.5 Retention of evidence
7.6 Adjustments and Section 352 Certificates
7.7 Adjustments and the Section 17 Return
7.8 Closed accounts
7.9 Penalties on term and notice accounts
7.1 Incorrect treatment of payments of interest
Deposit-takers may become aware that they have treated payments of interest incorrectly. Examples of common mistakes are
7.2 What deposit-takers can do to adjust interest payments and tax deducted
Where deposit-takers discover that they have dealt with interest incorrectly they should follow the guidance in paragraphs 7.3 to 7.8 below to put things right as soon as possible. But deposit-takers do not have to put things right if their treatment of interest was correct on the basis of the information available to them at the time the interest was paid. If LRT was deducted deposit-takers should simply issue a Section 352 certificate to the investor. Deposit-takers can make adjustments for any year where a Section 352 certificate has not been issued. If a Section 352 certificate has been issued the investor must reclaim any overpaid tax from the Inland Revenue.
7.3 Adjustments where interest has been wrongly calculated
Where a deposit-taker calculates interest to be paid or credited before the actual interest payment date, there may be transactions between the time of calculation and the date interest is paid. As a result the next interest payment may be incorrect. Deposit-takers usually correct this by adjusting the next interest payment. Where interest has been overpaid and the account has been closed see paragraph 7.8.
7.4 Adjustments and the CT61 Return
Deposit-takers should correct the LRT position on incorrect payments of interest by adjusting the next form CT61 return sent to the Inland Revenue Accounts Office. They should add the underpaid tax to the tax payable for that CT61 return period or deduct the overpaid tax from the tax payable for that CT61 period, as appropriate. Adjustments should be made using the rate in force at the time of the original interest payment.
Where a deposit-taker makes an adjustment to include unpaid LRT, recovery from the investor is a matter between the deposit-taker and the investor.
In all cases, deposit-takers must retain details of the adjustments made and make them available to the Inland Revenue if requested. Details should include
7.6 Adjustments and Section 352 Certificates
Where a Section 352 certificate has already been issued showing details of interest payment(s) and either the interest paid or the LRT deducted, is for whatever reason, adjusted, deposit-takers must not issue further Section 352 certificates, showing the adjusted interest payment(s) or LRT. Deposit-takers should instead issue a letter of explanation to the investor showing the adjusted details. Where an additional payment of interest is made because too little interest has previously been paid, a Section 352 certificate may be issued showing that payment as a separate payment of interest in the tax year in which it is paid. This may, of course, be a later tax year than the original interest was paid.
7.7 Adjustments and the Section 17 Return
Where the deposit-taker has not submitted his Section 17 return (see Chapter 8) before the adjustment is made, the corrected position should, if possible, be shown on the return.
If the return has already been submitted deposit-takers should retain details of the adjustments for production to the Inland Revenue on request. They should not submit a further return showing the adjustments.
Where an error is discovered on an account which has been closed deposit-takers should, if possible, correct the position. For example, where the deposit-taker has incorrectly paid interest without deducting LRT, he should pay the LRT to the Inland Revenue by adjusting the next CT61 return. Where the deposit-taker is unable to recredit LRT incorrectly deducted, he should issue Section 352 certificates to the investor. The investor may then take the matter up with the Inland Revenue.
Where too little interest has been paid on closure of an account, an additional payment may be made to correct the position when the error comes to light. The deposit-taker should deduct LRT if appropriate, and may issue a Section 352 certificate showing the additional payment. LRT should be deducted at the rate in force for the year in which the additional payment is made.
Where too much interest has been paid on closure of an account, recovery of the overpaid amount is a matter between the deposit-taker and the investor. Where LRT has been deducted from an excessive payment of interest, and the LRT has been accounted for to the Inland Revenue, the deposit-taker should recover the excess by adjusting their next CT61 return.
7.9 Penalties on term and notice accounts
Where an investor makes a withdrawal from his or her account before the end of its fixed term, or without giving the required period of notice, some deposit-takers impose a penalty. Normally, the penalty is deducted from, or reflected in, the next payment of interest on the account. Provided the penalty is not separately charged to the account but is deducted from the interest payment, deposit-takers should deduct LRT only from the interest actually paid. But where the penalty is charged to the account and the full amount of the subsequent interest payment is paid separately LRT must be deducted from the full amount of interest paid.
Where an account is closed and a penalty is deducted from the final interest deposit-takers should deduct LRT only from the interest actually paid.
Interest already paid, and LRT already accounted for, remain unaffected by any penalty charged by the deposit-taker, unless the terms of the account require a recalculation of interest already paid.
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