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HMRC internal manual

Compliance Handbook

Interest: Late payment interest: Special provisions: Effect of interest on reliefs: Relief by discharge

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.

We adjust the amount of late payment interest where it has been charged and the tax on which it was calculated is later reduced. There are two conditions to satisfy before we can apply the special provision.

Condition 1

The late payment interest has been calculated on any amount of

  • income tax paid on account (TMA70/S59A(2)), or
  • income tax or capital gains tax which becomes due and payable under an assessment or self-assessment, where the person

    • is required to make a balancing payment of income tax and/or capital gains tax for a year, after ITSA payments on account and any income tax deducted at source (TMA70/S59B), or
    • is due to pay income tax and/or capital gains tax because of an assessment other than a self-assessment, and doesn’t apply to postpone some or all of that tax, or
    • appeals against an assessment and the tax is not postponed or the appeal is determined (TMA70/S55).

Condition 2

The person is later given relief by discharge of any amount of tax that the late payment interest was charged on.

Applying the special provision

If both conditions are satisfied, a special provision says that we will adjust the amount of late payment interest as though the unpaid tax for that year, now discharged, had never been charged. The result is that late payment interest is only charged on the reduced amount, as if it had always been the actual liability for the year.

If the late payment interest has already been paid, then we repay the excess late payment interest.

But if the tax is discharged because of a claim to relief involving more than one year, see SACM11000, late payment interest will continue to run on the unpaid amount until the effective date of payment of the resulting free-standing credit. This is explained in SAM114060.

See CH145060 for an example.