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.
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|