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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Late payment interest: Special provisions: Special provisions for amount: IT Payments on account and balancing payments - examples

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.

A person can claim to reduce their payments on account if they think that their ITSA liability for the year will be less than their previous year’s liability.

This page provides examples of identifying the amount for late payment interest in this situation.

Example - payments on account paid by due and payable date
Example - payments on account paid late 

Example - payments on account paid by due and payable date

Alan made a claim to reduce his ITSA payments on account for the 2012-13 year, from two payments of £18,000 to two payments of £9,000. But when he made his self-assessment return he had to make a balancing payment of £6,000. He made the two payments of £9,000 by the due dates and, although he could have paid the extra tax earlier that resulted from the over-reduction, he paid the balancing payment on the due date of 31 January 2014.

We calculate late payment interest on the difference between the payment on account that he should have paid and the payment on account that he did pay.

For this purpose, the payment on account that he should have paid is the lesser of

  1. the amount of the payment on account, plus half of the balancing payment, and
  2. the amount of tax which would have been payable as a payment on account if the claim to reduce the payments on account had not been made.

Here,

  1. is £9,000 + (£6,000/2) = £9,000 + £3,000 = £12,000
  2. is (£36,000/2) = £18,000.

The lesser of (a) and (b) is £12,000.

Therefore, late payment interest is calculated as if the amount of each payment on account was £12,000. As Alan only paid £9,000 by the due dates for each of the two payments on account, we would charge late payment interest on the difference between £12,000 and the actual payment of £9,000, which is £3,000. The late payment interest runs from the due date until the balancing payment is paid. Although Alan had until 31 January 2014 to pay the balancing payment, late payment interest is charged from the two due dates for the payments on account.

Amount Due Date Interest start date Interest end date (date paid)
       
£3,000 31 January 2013 31 January 2013 31 January 2014
£3,000 31 July 2013 31 July 2013 31 January 2014

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Example - payments on account paid late

Siobhan made a claim to reduce her payments on account for her 2013-14 year from two payments of £25,000 to two payments of £10,000. But when she made her self-assessment return she had to make a balancing payment of £8,000. She paid the balancing payment on 6 June 2015.

The first payment on account was due on 31 January 2014, but was not paid until 20 March 2014. The second payment on account was due on 31 July 2014, but was not paid until 11 September 2014.

We calculate late payment interest on the difference between the payment on account she should have paid and the payment on account that she did pay.

To do this we treat each payment on account as if it were equal to the lesser of

  1. the amount of the payment on account, plus half of the balancing payment, and
  2. the amount of tax which would have been payable as a payment on account if the claim to reduce her payments on account had not been made.

Here,

  1. is £10,000 + (£8,000/2) = £10,000 + £4,000 = £14,000
  2. is (£50,000/2) = £25,000.

Here the lesser of (a) and (b) is £14,000.

Therefore, late payment interest is calculated as if the amount of each payment on account was £14,000. As Siobhan only paid £10,000 for each of the two payments on account, we would charge late payment interest on the difference between £14,000 and £10,000, which is £4,000, from the due date until the balancing payment is paid. We also charge interest on the late payment of the payments on account.

Amount Due Date Interest start date Interest end date (date paid)
       
£10,000 31 January 2014 31 January 2014 20 March 2014
£4,000 31 January 2014 31 January 2014 6 June 2015
£10,000 31 July 2014 31 July 2014 11 September 2014
£4,000 31 July 2014 31 July 2014 6 June 2015

See CH140220 for how to calculate the number of days.

FA09/SCH53/PARA1