This guidance explains the interest rules introduced by Finance Act 2009. These interest rules do not yet apply to all taxes. You must always check which taxes the rules apply to and the date from which they apply. When they apply, they replace any previous interest provisions.
The law requires a person to pay the correct amount due under an enactment to HMRC by the due and payable date. HMRC charges interest when the person does not fulfil this obligation and pays interest when the person pays too much.
Interest is recompense for the loss of use of money over time. It is not a penalty.
To compensate either party for the loss of use of money, HMRC
- charges interest when a person pays late - this is known as late payment interest, and
- pays interest on overpayments and repayments - this is known as repayment interest.
Late payment interest and repayment interest are calculated on a simple, not compound, basis. This means that interest is only calculated on the amount of the tax or penalty (late payment interest only), and not on interest that has already been charged or accrued.
Eventually, the interest provisions will apply to all taxes and duties, other than customs duty. However, the interest provisions currently only apply to certain taxes and any associated penalties. There is a list of these taxes at CH140160.
There are general rules to calculate late payment interest and repayment interest, and special provisions that apply in particular circumstances. You must always check whether the general rule is amended by a special provision for the situation that you are dealing with.
Late payment interest
The general rule is that late payment interest runs from the late payment interest start date until the late payment interest end date.
In most cases the late payment interest start date is the due date for payment.
In most cases the late payment interest end date is the date when the amount is paid. There can be multiple late payment interest end dates where an amount is paid by instalments.
There are special provisions that apply in particular circumstances that change the late payment interest start date and identify the amount on which interest is charged.
The general rule is that repayment interest runs from the repayment interest start date until the repayment interest end date.
The general rule defines the repayment interest start date as follows.
- When HMRC repays an amount that a person has paid to HMRC, the repayment interest start date is the later of
* the date when the amount was paid, and * the date when the amount became due and payable to HMRC.
- Where the amount has not been paid to HMRC but becomes overpaid or a repayment becomes due because of a return or claim, the repayment interest start date is the later of
* the date when the return was required to be filed, or the claim to be made, and * the date when the return was actually filed or the claim actually made.
You won’t use this second definition of the repayment interest start date yet because it is not relevant to the taxes to which the FA 2009 interest provisions currently apply.
The repayment interest end date is the date when the amount is repaid or set off against another liability.
There are special provisions that change the repayment interest start dates in particular circumstances. There are no special provisions that change the repayment interest end date or change the amount on which interest is paid.