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HMRC internal manual

Compliance Handbook

Interest: Late payment interest: Special provisions: Special provisions for amount: IT Payments on account and balancing payments

You must check whether, and from which date, the FA 2009 interest rules apply to the tax or duty you are dealing with. See CH140160 for full details.

Under self-assessment, a person is required to pay two equal payments on account towards their tax liability. Those payments on account are based on the previous year’s liability. In certain circumstances, a person can claim to reduce their payments on account where their self-assessment liability is expected to be either nil or less than the total payments on account. Where payments on account are reduced and the final liability exceeds the total revised payments on account, the person is required to make a balancing payment of the difference, see SACM1005+.

A special provision changes the general rule at CH141120. It applies where a person makes a claim to reduce their payments on account that are due under self assessment, and then, because the claim was excessive, has to make a balancing payment as a result of their self-assessment for the year or a later discovery assessment. A balancing payment is the difference between a person’s liability for the year and the total of the payments on account and tax deducted at source for that year.

Late payment interest is charged in this situation because, if the person had paid the payments on account based on the previous year’s liability, or was more accurate with their estimation, then we would have received the tax sooner. The special provision quantifies the amount on which late payment interest is charged.

The amount on which late payment interest is charged is the lesser of

  1. the total of each reduced payment on account and 50% of the balancing payment, and
  2. the amount of tax that would have been payable as a payment on account if the claim to reduce their payments on account had not been made.

To work out the amount of the balancing payment at (a), we

  • assume that both of the payments on account have been paid,
  • ignore any amount that has been paid on account that is in addition to the two required payments, and
  • ignore any amount payable as capital gains tax or student loan repayments.

The lesser of (a) and (b) is treated as the amount that the person should have paid by each due date. We then reduce this amount by any payment made by the due date and charge interest on any amount unpaid.

See CH142260 for an example.