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HMRC internal manual

COTAX Manual

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HM Revenue & Customs
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Interest: how interest is calculated: late payment interest calculation by COTAX

COTAX automatically reviews the interest position when a payment or charge is recorded.

COTAX does not automatically calculate and charge late payment interest where:

  • the ‘clerical interest’ indicator (CII) is set to ‘Y’ or
  • there is a date struck off on the record and that date has passed or
  • the number of interest accruals is greater than 200.

Where the CII is not set

COTAX automatically charges late payment interest under Section 87A TMA 1970 on any tax paid after the normal due date (Word 49KB) for the AP once the tax liability has been paid in full and a tax charge is present.

In CT Pay and File, late payment interest was calculated once the due date had passed regardless of whether a tax charge was present or not.

When COTAX calculates late payment interest it applies the following rules.

  • A non-trading deficit carried-back to an earlier AP, interest runs to the normal due date of the AP from which it was carried back.
  • A trading loss carried-back, interest runs to either:

    • the normal due date of the receiving AP, when the trade loss is carried back 12 months or less or
    • to the normal due date of the AP from which it was carried back, in all other cases.
  • ACT carried-back to a CT Pay and File AP, interest runs to the normal due date of the AP from which it was carried back.

Where COTAX is unable to calculate interest correctly on a carry-back (Word 32KB), the caseworker sets the ‘CII’ signal to prevent it creating an incorrect interest charge. For more information see COM50000 onwards.

Interest is not charged on either:

  • penalties or interest itself or
  • tax which is stood-over or suspended.

Where the CII is set

COTAX does not do any of the following.

  • Automatically calculate and charge Section 87A TMA 1970 interest.
  • Make automatic repayments and reallocations or issue payment applications.
  • Display the total interest accrued to date in function VPPD (View Payment and Posting Details), or on assessment output or penalty determinations.

See:

  • COM80011 for a list of forms relevant to this subject
  • COM80012 for a list of functions to use in particular situations
  • COM80013 for legislation applying to this subject.