Policy paper

Interest rate review

Published 3 December 2020

1. Introduction

1.1 The Disguised Remuneration Loan Charge (Loan Charge) was announced at Budget 2016 to tackle the use of disguised remuneration tax avoidance schemes. These are tax arrangements that seek to avoid income tax and National Insurance contributions by paying scheme users income in the form of loans, usually via an offshore trust, with no expectation that the loans will ever be repaid.

1.2 The legislation introduced in 2017 meant that outstanding balances at 5 April 2019 of loans taken out since 6 April 1999 would be taxed as income for the 2018 to 2019 tax year. Taxpayers would not be liable if they repaid the loan or settled their affairs with HM Revenue and Customs (HMRC) before that date. The government report on time limits and the charge on disguised remuneration loans sets out the policy rationale.

1.3 In September 2019 the government asked Sir Amyas Morse to undertake an independent review of the Loan Charge in recognition of concerns raised about the Loan Charge policy. The review published its report in December 2019 and, in response, the government accepted all but one of the twenty recommendations made.

1.4 This report responds to recommendation 8:

the extent to which the Loan Charge looks back to activity in earlier tax years dating back to 1999-2000, and the manner in which ongoing interest is charged on payment arrangements has given rise to concerns over how policy on interest is applied within the tax system. The government should review future policy on interest rates within the tax system and report the results to Parliament by 31st July 2020

1.5 The government fully accepted the recommendation but the subsequent need for an urgent government response to the COVID-19 pandemic significantly reduced the availability of resource to undertake the review and it was therefore agreed that the report back to Parliament would be delayed until the end of November 2020.

Scope

1.6 Although the recommendation was about the rates of interest within the tax system, the review also looked at the application of those rates and at wider comparisons. It considered:

• the underlying principles for HMRC charging and paying interest
• the difference between interest rates charged and paid
• commercial interest rates applied in the financial products market
• interest rates used by comparable tax authorities internationally
• HMRC communications with taxpayers who are liable to interest that dates back a number of years
• interactions with other government reviews and initiatives

2. Principles for HMRC Charging and Paying Interest

2.1 The key principle that underpins both the charging and paying of interest by HMRC is recompense. Interest represents compensation to the party that is deprived of the use of the money it is owed. It is not used by HMRC as a penalty for late payment.

2.2 The application of interest also seeks to achieve fairness, by preventing those who do not pay on time from gaining financial advantage over those who do. If a taxpayer fails to pay the right amount of tax on time, they benefit when compared with a taxpayer who did pay on time. Whatever they do with the unpaid tax, they are at a financial advantage, while the Exchequer is at a relative disadvantage.

2.3 Interest on tax debt seeks to address this by ensuring that the Exchequer is compensated for the time that the right amount of tax was unpaid. It reinforces the fact that taxes are due for payment on particular dates and brings a degree of fairness into the system where those payment dates are not met by some taxpayers but are by others.

2.4 Most tax authorities internationally view interest as a mechanism for removing an unfair commercial advantage between those who pay on time and those who pay late. In New Zealand, this is illustrated by the fact that interest on underpaid tax is called ‘Use of Money Interest’ (see Annexe B).

How interest rates are set

2.5 The rates are set in regulations made by HM Treasury, in accordance with the provisions in Finance Act 2009, section 103. The Taxes and Duties, etc (Interest Rate) Regulations 2011 specify the formulae, which set the rates and link to the prevailing Bank of England base rate.

2.6 In accordance with the Regulations, the rate of interest on tax owed to HMRC is higher than on overpaid tax that is repaid to a taxpayer. This reflects common commercial practice (see Annexe A), is widely accepted and is in line with the application of interest by tax authorities in most other jurisdictions (see Annexe B).

2.7 When compared with other tax authorities internationally, HMRC charge one of the lowest rates of interest on underpaid tax. HMRC also pay a lower rate of interest on overpayments than some other tax authorities.

2.8 Other than for Corporation Tax in-year Quarterly Instalment Payments (QIPs, see below), the interest rates across taxes are harmonised at 2.5% above the Bank of England base rate where customers are charged interest and 1% below the Bank of England base rate where HMRC pay interest - see Rates and allowances: HMRC interest rates for late and early payments.

2.9 The Regulations also ensure that the minimum rate of repayment interest paid by HMRC is 0.5%, even if the formula produces a lower percentage. This ensures that where a repayment is made, a taxpayer receives some form of financial redress.

How interest is calculated

2.10 Debit interest is charged on late payments, from the date that the payment was due, to the date that the payment is received. For Income Tax Self-Assessment (ITSA) most customers have to make two payments on account each year, which are due by 31 January and 31 July (any remaining amount is due by 31 January of the following year); interest is charged on late payments on account from the date that they were due, in the same way as it is on other late payments.

2.11 When HMRC repay an amount that has previously been paid, they pay repayment interest from the original due date of the payment or (if later) the date that the payment was actually made, to the date the repayment is authorised.

2.12 HMRC charge and pay simple interest, i.e. they only apply interest to the initial amount due. For example, a debt of £100 liable to interest of 5% each year would mean that the total debt is £105 after year 1 and £110 after year 2. HMRC do not charge or pay compound interest, i.e. interest charged on the sum of the initial debt plus any previously accrued interest.

2.13 The interest rates on unpaid and overpaid tax are set by Regulations made by HM Treasury. As interest aims to address financial advantage, it needs to respond to changes in market rates. The Regulations therefore stipulate that interest rates are linked to the Bank of England base rate. Interest is charged on a daily basis, so rates are quickly adjusted to reflect any changes to the Bank of England base rate.

2.14 An example is set out below. It shows a tax debt of £1,000 that should have been paid on 31 January 2017 but was not paid until 31 March 2020. The interest rate applied is the rate in force on each day that the amount remains outstanding. There were four interest rate changes over this period, and the new rate applies from the next day following an interest rate change. The total interest incurred would have been £96.89.

Date From	Date To	Interest Rate	No. of Days interest rate applied	Interest Due
01/02/17	20/11/17	2.75%	293	£22.07
21/11/17	20/08/18	3.00%	273	£22.43
21/08/18	31/12/19	3.25%	498	£44.34
01/01/20	29/03/20	3.25%	89	£7.90
30/03/20	31/03/20	2.75%	2	£0.15
			Total Interest	£96.89

Interest and tax enquiries

2.15 HMRC has the right to make enquiries into any tax return, or subsequent amendment to a tax return. For enquiries into Income Tax Self-Assessment (ITSA) or Corporation Tax returns, a notice of enquiry must be given. The enquiry notice must generally be given in the twelve-month period from the date the return or amendment is delivered or from the relevant statutory filing date.

2.16 Once an enquiry is opened there is no limit on how long it may remain open but a closure notice will be given when no further information is required to check the accuracy of the return or to quantify any adjustments. At any time during the course of an enquiry, the taxpayer may apply to the tribunal for a direction that HMRC should issue a partial or final closure notice.

2.17 As set out above, interest accrues while tax remains outstanding. This can continue to be the case if an enquiry into tax affairs identifies that tax is due but information requested from the taxpayer has not been provided or a settlement is not agreed. The interest will stop accruing once the tax debt is paid.

2.18 Ordinarily, any additional tax assessment from HMRC would be limited to four years, from the end of the accounting period or tax year to which the amount relates. In cases of carelessness the time limit extends to six years.

2.19 In the case of assessments relating to off-shore undeclared tax, the time limits for both ordinary and careless under declarations are extended to 12 years. For deliberate action involving a loss of tax, the time limit for assessment extends to 20 years after the end of the tax year to which it relates.

2.20 If an outstanding amount or assessment is not paid, interest will continue to accrue until such time as payment is received.

2.21 Accelerated Payment Notices (APNs) were introduced in 2014. An APN can be issued to someone who has used an avoidance scheme and has an open enquiry. Payment of the amount specified in the notice is due within 90 days. Interest that has been accruing on the disputed tax will stop accruing on the amount of tax that is equivalent to the accelerated payment, once the payment is received. No interest is charged on late payment of the APN but interest will continue to accrue on the outstanding tax. If at the end of the enquiry it is found that the APN amount paid exceeds the tax due then the overpayment is usually refunded and interest is paid by HMRC on the overpaid amount.

Special rates of interest

2.22 Corporation Tax QIPS are in year payments made by large companies. The payments are based on estimations of the tax liability, prior to the actual taxable profits being known. Due to the uncertainties of estimating the amount payable, a lower rate of late payment interest is charged and a higher rate of repayment interest is paid by HMRC until the normal accounting period payment date is reached. At this point, the actual tax liability can be established and the standard HMRC interest rates apply.

2.23 For contract settlements (see glossary in Annexe D) an additional 1% interest is charged in cases involving instalments, to cover the additional risks and costs involved over an extended payment period. The total outstanding balance (including any interest due at the point the settlement is made) and ‘forward interest’, to cover the instalment period, form the basis of the calculation of instalments over the contract period. For example, if the interest rate on unpaid tax was 3%, then 4% would be applied to the progressively reducing balance throughout the contract period. The ‘forward interest’ forms part of the contract settlement, so the rate does not vary with the Bank of England base rate.

Conclusions

2.24 HMRC is a government department and is therefore not engaging in commercial activity. The fact that HMRC rates are lower both for tax debt and repayments reflects this. Furthermore, the rates used by HMRC are not inconsistent with those used by tax authorities internationally.

2.25 Interest rates applied by tax authorities in other jurisdictions are often based on some sort of underlying national base rate and are reviewed and amended on a fairly regular basis to reflect changes to the underlying base rate. This is similar to the government‘s approach to interest rates within the UK tax system.

3. Interest and Disguised Remuneration

3.1 In his Independent Review of the Loan Charge Sir Amyas Morse highlighted the impact of interest arising from large amounts being under consideration while enquiries continued for several years. He considers the cumulative impact of interest to be disproportionate and refers to interest being ‘compounded over 20 years’.

3.2 To be clear, as explained in paragraph 2.12 above, HMRC does not charge compound interest, but the total interest charged can be high where, for example:

1. it takes a long time to agree the amount of tax due
2. an assessment covers a lengthy period of up to 20 years
3. a customer delays paying an established tax liability for many years

3.3 This is especially true where the interest rate has been high in some of those years. For example between 2000 and 2009 the applicable interest rate regularly exceeded 6%, reaching 8.5% at some points.

Interest due on settlements

3.4 When an enquiry into a tax year has been opened and it is found that the taxpayer has understated income, HMRC aims to settle the vast majority of cases by agreement. A schedule of adjustments is sent to the taxpayer and, if agreed, a settlement agreement is issued, which will include interest and any penalties as well as the tax due. Payment is due 30 days after the agreement is signed. Interest will continue to accrue if the amount is not paid.

3.5 In cases where income was disguised as loans, for a range of reasons, many enquiries remained open for a long period of time. The interest amount due in some cases was high, partly because the tax was outstanding for so long but also because the interest rate is not static and the rates applicable between 2000 and 2009 were much higher than the rates have been in recent years.

Interest on the Loan Charge

3.6 The Loan Charge specifies a date from which loans are within the scope of the Loan Charge and, if they are still outstanding on 5 April 2019, then treats them as income in the tax year ending 5 April 2019. It originally provided that it should apply to loans made on or after 6 April 1999 but now does not apply to loans made before 9 December 2010.

3.7 Following publication of the Independent Loan Charge Review in December 2019, it was agreed to give those impacted by the Loan Charge longer to file their 2018 to 2019 self-assessment return. Originally the Loan Charge should have been paid before 1 February 2020 and interest would ordinarily have accrued from 1 February 2020 until it was paid. However, interest was not charged from 1 February 2020 to 30 September 2020 as long as an accurate return was filed, and tax paid or an arrangement was made with HMRC to do so, by 30 September 2020.

3.8 For Loan Charge customers, where a payment on account was due on 31 July 2020, no late payment interest will be charged if the payment is made by 31 January 2021 or if it is included in a payment arrangement by that date.

HMRC communications with taxpayers

3.9 In the past, HMRC sometimes relied on the promoters of tax avoidance schemes to communicate messages to those who used them.

3.10 This approach meant that many of the individual taxpayers involved did not always feel adequately informed of potential issues with their tax affairs. Interest could therefore have been accruing for a much longer period than would have been the case if the tax owed had been paid at an earlier date.

3.11 More recently HMRC communication has improved and since 2014 it has been communicating directly with users of avoidance schemes, and users of disguised remuneration schemes have had more regular contact in the last two years.

Conclusion

3.12 HMRC have already accepted the recommendation of Sir Amyas Morse that they should update taxpayers at least annually about the status of open tax enquiries. They also now seek to contact avoidance scheme users at an early stage, before a return has been received, rather than waiting until an enquiry can be opened.

3.13 Sir Amyas Morse’s review highlighted instances where the accrued interest was greater than the tax due. While interest is not punitive and is only designed as recompense for the time when tax has not been paid, these cases are exceptional and the length of time over which interest accrued could mean that, especially when compared to much lower current rates of interest, the amounts charged appear disproportionate.

3.14 Taking into account the impact on interest liabilities when enquiries remain open for a significant period and/or interest rates are particularly high, this Review concludes that the government should:

• consider introducing a mechanism that forces specific consideration to be given to whether the automatic link with the Bank of England base rate should be maintained or suspended if there is a significant increase to the Bank of England base rate, taking it above 3%
• consider whether HMRC should have greater discretion over the application of interest in exceptional circumstances.

Any changes will be announced at a future fiscal event.

4. Summary of conclusions and recommendations

4.1 The principle of charging interest on outstanding amounts of tax due is not generally controversial. People who pay late generally expect to pay interest.

4.2 The application of interest within the tax system generally appears to be reasonable when compared to interest that is charged commercially. The fact that HMRC rates are lower both for tax debt and repayments reflects the fact that it is a government department and is not engaging in commercial activity.

4.3 Furthermore, although at the lower end of the spectrum, the rates used by HMRC are not inconsistent with those used by tax authorities internationally. Interest rates applied by tax authorities in other jurisdictions are often based on some sort of underlying national base rate and are reviewed and amended on a fairly regular basis to reflect changes to the underlying base rate. This is similar to the government‘s approach to interest rates within the UK tax system.

4.4 Sir Amyas Morse’s review highlighted instances where the accrued interest was greater than the tax due. These cases are exceptional and the length of time over which interest accrued could mean that, especially when compared to much lower current rates of interest, the amounts charged appear disproportionate.

4.5 The government has already accepted the recommendation of Sir Amyas Morse that HMRC should update taxpayers at least annually about the status of open tax enquiries. HMRC also now seek to contact avoidance scheme users at an early stage rather than waiting until an enquiry can be opened.

4.6 Historic high interest rates were one of the main reasons that the amount of interest could be high on tax debts that had been outstanding for many years.

4.7 Taking into account the impact on interest liabilities when enquiries remain open for a significant period and/or interest rates are particularly high, this review concludes that the government should:

• onsider introducing a mechanism that forces specific consideration to be given to whether the automatic link with the Bank of England base rate should be maintained or suspended if there is a significant increase to the Bank of England base rate, taking it above 3%
• onsider whether HMRC should have greater discretion over the application of interest in exceptional circumstances

Any changes will be announced at a future fiscal event.

Annexe A – commercial interest rates

There are very few caps on the rates or amounts of interest that can be charged on debt or late payments relating to commercial and consumer agreements.

Commercial agreements

A commercial agreement is a legally binding contract between two parties. Commercial agreements can cover all aspects of business including loan and finance agreements.

A statutory rate of interest can be applied to commercial agreements by virtue of the Late Payments of Commercial Debts (Interest) Act 1998.

‘Statutory Interest’ applies to qualifying debts in commercial contracts for the supply of goods and services from business to business.

Statutory interest provisions do not apply if the express terms of a contract provide a substantial remedy for late payment. So statutory interest is a default rate that can be applied if a contract is silent on the issue, or otherwise provides insufficient remedy.

The current statutory rate of interest is 8% plus the Bank of England Base Rate.

Consumer agreements

The Late Payments of Commercial Debts (Interest) Act 1998 does not apply to consumer credit agreements, mortgage agreements or agreements for pledge, charge or security.

A consumer credit agreement is a legally binding contract that covers the provision of credit to an individual. Consumer credit agreements come in many forms and cover a range of goods and services, including hire purchase, credit cards and loans.

Consumer credit agreements are regulated under the Consumer Credit Act 1974, and interest payable on any loan or default is subject to an Annual Percentage Rate (APR).

Any amount of interest can be charged but the APR and any default interest payable by a consumer under a regulated agreement must be clearly communicated to the consumer before the agreement is made.

The total cost of any credit must also be fully explained to the consumer before they enter into the agreement (Consumer Credit (Agreements) Regulations 2010; schedule 1).

A lender cannot charge any interest on default of payment unless it has been set out in the credit agreement.

All consumer lending is subject to the Lending Code and the Consumer Credit Sourcebook, which are regulated by the Financial Conduct Authority (FCA). Lenders should therefore consider freezing or reducing interest and charges when a customer is facing financial difficulties.

The lack of a general restriction on the rate of interest that can be charged in a consumer credit agreement has led to the widespread use of High Cost Short-Term Credit, sometimes referred to as payday loans. Extremely high rates of interest (often over 900%) can be charged on these loans and the justification given for use of such high rates has been that it is intended that the loan is repaid over a very short period of time.

In June 1999 the then Department for Trade and Industry published a Report on Extortionate Credit in the UK which called for reform. Many consumers of these types of loan did not repay the original debt within a short period of time and consequently incurred a substantial increase in the amount owed.

In 2013 the FCA was given powers to put a cap on payday loan interest. That cap was introduced in 2015 and means that the fees and interest must not exceed 0.8% per day. Additionally, the total cost of a loan must not exceed 100% of the original loan amount, so consumers cannot be charged more than double the original loan.

Annexe B - interest rates used by tax authorities internationally

This review considered the way interest is charged by six similar tax authorities around the world – Australia, Canada, France, Germany, New Zealand and the United States. All of the jurisdictions considered, charge interest of some sort on unpaid tax amounts.

Interest rates vary between different jurisdictions but most charged between 2% and 7% and paid between 0% and 3%. Some tax authorities charged and paid compound interest, others only compounded interest on underpaid tax, and the rest applied simple interest. Most jurisdictions applied penalties as well as interest on unpaid tax.

The Australian model combines penalties and interest in its General Interest Charge. It also has a lower rate Shortfall Interest Charge for those who have received an amended assessment. The Shortfall Interest Charge only applies from the due date for payment of the original assessment until the day before the amended assessment is issued, after that the General Interest Charge applies.

Although some jurisdictions use interest in a punitive manner, most view interest as a mechanism for removing an unfair commercial advantage. The New Zealand authorities actually call it ‘Use of Money Interest’. The rationale is that someone, who has not paid the tax they should have paid, has had the benefit of use of that money. If the individual simply repaid the amount of tax due with no interest, they would have had the advantage of benefitting from that money in a way that those who paid on time could not have done.

No jurisdiction has any provision for reducing interest for older debts because that would be viewed as giving a commercial advantage and could provide a disincentive for paying the right amount of tax on time.

Many jurisdictions regularly change the applicable rates of interest but Germany has used the same rate since the 1950s. The German policy has been challenged a number of times, as some taxpayers consider the static rate to be unfair and too high.

Some jurisdictions have discretion to waive interest charged in certain limited circumstances.

Australia

• Interest on unpaid tax is compounded daily.
• Australia has two rates of interest for underpaid tax, a General Interest Charge (GIC), which combines late payment penalties and interest, and a Shortfall Interest Charge (SIC).
• GIC applies to unpaid tax liability from the date it was due to the date it is paid. The GIC rates for the 4 quarters of 2019/20 Australian Tax Year, ending June 2020, were 8.54%, 7.98%, 7.91% and 7.89%. For the quarter commencing 1 July 2020 it was 7.10%.
• SIC applies where additional tax is due as a result of an amended tax assessment. The SIC rates for the 4 quarters of 2019/20 Australian Tax Year were 4.54%, 3.98%, 3.91% and 3.89%. For the quarter commencing 1 July 2020 it was 3.10%.
• Australian law provides a discretionary power for remission of interest in certain extenuating circumstances.
• Interest rates paid on overpayments for the 4 quarters of 2019/20 Australian Tax Year were 1.54%, 0.98%, 0.91% and 0.89%. For the quarter commencing 1 July 2020 it was 0.10%.

Canada

• Interest is compounded daily.
• Interest rates are reviewed and set for each quarter.
• The interest rate charged for underpayment of taxes had been set at 6% for each quarter since 1 April 2018 but it was reduced to 5% for the quarter commencing 1 July 2020.
• Canada Revenue Agency has discretion to cancel or waive interest when taxpayers are unable to meet their tax obligations due to circumstances beyond their control.
• The interest rate paid on corporate taxpayer overpayments had been set at 2% for each quarter since 1 April 2018 but it was reduced to 1% for the quarter commencing 1 July 2020.
• The interest rate paid on non-corporate taxpayer overpayments had been set at 4% for each quarter since 1 April 2018 but it was reduced to 3% for the quarter commencing 1 July 2020.

France

• Interest rates were set in 2017 for a three-year period ending 31 December 2020.
• Additional tax as a result of re-assessment is charged monthly at 0.4% (4.8% per annum), for tax debt which accrued before 1 January 2018.
• For tax debt which accrued between 1 January 2018 to 31 December 2020 the rate of interest charged is 2.4% per annum.
• The interest rate on overpaid tax was also 4.8% per annum prior to 1 January 2018.
• The interest rate for overpaid tax is currently 2.4% per annum.
• The interest rates charged and paid are therefore the same.
• The interest rates from 1 January 2021 will be set by statute.

Germany

• Interest is calculated on a monthly basis, on full months only, and it is not compounded.
• A single rate of interest of 0.5% per month (6% per annum) is used for both underpayments and overpayments.
• The rate has been unchanged since the 1950s.
• Interest is only applied if it amounts to at least 10 euros.
• The fixed interest rate is considered by some taxpayers to be too high and unfair. It is currently being challenged before the German constitutional court.

New Zealand

• Interest on underpaid tax is known as ‘Use of Money Interest’
• Interest is calculated daily and is not compounded.
• No interest is charged on amounts below $100.
• The interest rates are set by the government and are based on market rates, so they vary over time.
• The interest rate charged has been 7.00% since 8 May 2020.
• The interest rate paid is based on the 90 day bank bill rate minus 100 basis points but if this is lower than 0.00% the rate is set at 0.00%. The 90 day bank bill rate is currently 0.26% so the interest rate paid is currently 0.00% and has been since 8 May 2020.

United States

• Interest is compounded daily.
• Interest generally accrues on any unpaid tax from the due date of the return until the date of payment in full.
• Interest rates are based on the Federal Short-Term rate and are announced by the Inland Revenue Service on a quarterly basis.
• The interest rate charged for underpayment of taxes had been set at 5% for each quarter since 1 July 2019 but it was reduced to 3% for the quarter commencing 1 July 2020.
• Large corporates pay a higher rate of interest, which had been set at 7% for each quarter since 1 July 2019 but it was reduced to 5% for the quarter commencing 1 July 2020.
• The interest rate paid on overpayments also reduced from 5% to 3% on 1 July 2020.
• For corporations the interest rate paid on overpayments was reduced from 4% to 2% on 1 July 2020. Corporations are also paid a lower rate of interest on the portion of an overpayment that exceeds $10,000, this rate was reduced from 2.5% to 0.5% on 1 July 2020.

Annexe C – interactions with other government initiatives

Breathing Space Scheme

In 2017, the government made a manifesto commitment to implement a Breathing Space and Statutory Debt Repayment Plan. It aims to give people in problem debt an opportunity to take control of their finances and put them on a sustainable footing.

The Breathing Space scheme covers almost all personal debts, including those owed to government, and business debts incurred by small sole traders. The scheme will create a 60 day respite period, for people in problem debt, where interest and penalties on their debts will be frozen and most enforcement action from creditors will be paused. This will create an opportunity for them to access debt advice and establish a sustainable debt solution. In its response to the consultation, the government expressed its intention to implement the Breathing Space Scheme in 2021.The Statutory Debt Repayment Plan will follow at a later date.

HMRC already has procedures in place to deal with customers in financial hardship. It takes an holistic customer approach, looking at the totality of what is owed - including interest. For individuals who have no ability to pay, recovery action is put on hold until there is a change in circumstances. However, any future changes in the way that HMRC may apply interest will take account of the implementation of the Breathing Space scheme.

Interest harmonisation

The government consulted on harmonisation of interest rates across the main taxes in Making Tax Digital: interest harmonisation and sanctions for late payment. The consultation ran from 1 December 2017 until 2 March 2018.

The proposals on interest generally received broad support, although there were some concerns around the rules on VAT repayment interest. VAT interest rules for late return payments will change. Where a return is submitted and paid after the proper due date, interest will be charged from the date the payment for the return was due until it is paid, in line with the rules for Income Tax Self-Assessment.

With some exceptions, such as periods of reasonable enquiry, repayment interest will also be payable on VAT repayments, either from the last day the return was due to be received or the day it was received, until the date the repayment to the customer is authorised.

Draft legislation for these changes has already been published and the changes will be implemented in due course.

Annexe D - glossary

Term	Definition
Bank of England base rate	The Bank of England base rate is the interest rate set by the Bank of England Monetary Policy Committee and it influences other interest rates
Basis point	A basis point is one hundredth of a percent (0.01%)
Compound interest	Compound interest is interest that is charged on the principal amount due plus accumulated interest from previous periods (so interest is charged on interest)
Contract settlement	A contract settlement is a legal agreement, in this context it is a legal agreement between HMRC and a taxpayer for the taxpayer to pay an agreed tax liability without HMRC taking formal action to recover the tax, interest and penalties
Disguised remuneration	Disguised remuneration is income that is made to look like another form of transaction, such as a loan, in order to avoid paying tax and national insurance
Loan Charge	The Loan Charge is a measure to address tax avoidance by making a charge on the amount of all loan balances that were outstanding on 5 April 2019
Quarterly Instalment Payments	Quarterly Instalment Payments are quarterly payments of Corporation Tax made by large companies, based upon their estimates of their Corporation Tax liability for the accounting period
Simple interest	Simple interest is interest that is only charged on the principal amount due
Statutory Interest	Statutory Interest is the interest a business can charge another business for late payment for goods or a service, if no other provision for late payment has been made
Time to pay	Time to pay is an instalment arrangement for people who are having difficulty making their tax payments, the arrangement is based upon the specific circumstances of the taxpayer involved