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HMRC internal manual

Compliance Handbook

Interest: Repayment interest: Allocating 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. 

Example 1 - allocating overpayments

An enquiry into James’s 2014 self-assessment identified a systems error at his business that resulted in him paying £8,000 too much tax for 2013-14. The £8,000 was refunded on 1 July 2015.

James had made the following payments.

  Amount due Due date Date paid
Payment on account £3,000 31 January 2014 26 January 2014
Payment on account £3,000 31 July 2014 31 July 2014
Balancing payment £6,000 31 January 2015 20 February 2015

Following to the allocation rules, see CH146100, repayment interest start and end dates are as follows.

 

 

  Amount Repayment interest start date Repayment interest end date Comment
Balancing payment £6,000 20 February 2015 1 July 2015 As James made this payment late, repayment interest starts from date of payment, not the original due date. (Late payment interest charged from 31 January 2015 to 20 February 2015 will also be reversed).
Payment on account £1,000 31 July 2014 1 July 2015 We allocate the balance of the refund, £2,000, evenly between the two payments on account.
Payment on account £1,000 31 January 2014 1 July 2015 Although James made this payment early, repayment interest starts from the due date.

Example 2 - allocating overpayment to ITSA payments on account

Richard paid a first payment on account of £5,000 in four instalments on the following days.

Instalment Date Amount
1 15 January £1,500
2 31 January £2,000
3 1 March £500
4 14 March £1,000
  Total £5,000

Later it turns out that Richard had overpaid this amount by £2,500. For repayment interest purposes, we allocate the overpayment to the most recent payment first. The repayment interest start dates are therefore:

 

Allocate overpayment against instalments in this order Date Amount
First against instalment 4 14 March £1,000
Second against instalment 3 1 March £500
Third against instalment 2 31 January £1,000
  Total overpayment allocated £2,500

FA09/SCH54/PARA13