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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: clerical charge (debt management) (Action Guide)

To raise or amend a late payment interest charge in a Debt Management Office consider steps 1 - 33 below.

The guide is presented as follows.

Preliminary action Steps 1 - 5
   
Incorrect EDP used for charging late payment interest Steps 6 - 7
Tax charge reduced to nil Steps 8 - 10
Calculation of interest in struck-off cases Steps 11 - 14
Too many interest accruals to display Steps 15 - 17
Calculation of interest in insolvency cases Steps 18 - 20
Calculation displayed on function RMIC screen COT107C is correct Steps 21 - 26
Calculation displayed on function RMIC screen COT107C is incorrect Steps 27 - 31
AP is overpaid after raising or amending a late payment interest charge Step 32
AP is underpaid after raising or amending a late payment interest charge Step 33

Preliminary action

1. Before you raise or amend a late payment interest charge, you must have one of the following.
   
  * Authority to discharge interest on form AZ63.
  * Responsibility for lodging HMRC’s claim in an insolvency.
  You must not raise or amend a late payment interest charge clerically unless you have authority to do so.
2. Where you have authority, use function VPPD (View Payment and Posting Details), view AP summary screen to confirm the AP is subject to clerical pursuit.
3. Note the total tax charged, as you will need this when using function RMIC (Raise Manual Interest Charge) later. Take prints of the postings screen as you will need this later then check the debit and credit interest position for the AP.
  When using RMIC (Raise Manual Interest Charge), you must ensure that you correct the overall interest position, that is late payment and credit or debit interest.
4. Use function RAPP (Revise AP Pursuit) where necessary to make the AP LA.
5. Check that you have all the information you need to use function RMIC. Before calculating the late payment interest, you need to know the total tax charge, the amounts and dates of payment, including any unpaid liability.

Incorrect EDP used for charging late payment interest

6. If the wrong EDP has been used to calculate the late payment interest, use function AEDP (Amend Effective Date of Payment) to amend it unless the EDP relates to an ACT, trade loss or a non-trading deficit carry-back.
   
  By amending the EDP, COTAX automatically recalculates the late payment interest to the correct date unless the ‘clerical interest’ indicator (CII) signal is set. Where the signal is set, see step 21 on how to amend the interest charge.
7. Where an incorrect EDP has been allocated to an ACT, trade loss or a non-trading deficit carry-back, refer the correspondence to the CT Unit in Cumbernauld.

Tax charge reduced to nil

8. Where you wish to reduce a late payment interest charge to nil as the tax liability has been reduced to nil, use function RMIC to cancel the interest charge.
   
  * Enter ‘Y’ in the ‘prepare interest’ field on screen COT107C.
  * Select an accrual and select the [Amend] button.
  * Enter the normal due date as the accrual to date.
  * Repeat as necessary.
9. Select the [OK] button and check that the computation on screen COT107E has been reduced to nil. If not, select the [Prev Panel] button and check that each accrual has an accrual to date the same as the normal due date.
10. Where the computation is nil, enter ‘Y’ in the ‘raise / amend interest charge as calculated’ field.

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Calculation of interest in struck-off cases

11. Where a time to pay arrangement has been made to pay the outstanding tax by instalments in a struck-off case, interest should be calculated using function CINT (Compute Interest) and included in the arrangement.
   
12. Set the ‘clerical interest’ indicator (CII) using function RAPP (Revise AP Pursuit).
13. Use function LCWC (Cases Working Clerically List) to monitor the time to pay arrangement.
14. Once the tax and the interest has been paid in full:
  * contact the CT responsible office and ask them to remove the struck-off date using function ACTP (Amend CT Payer Details)
  * use function RMIC (Raise Manual Interest Charge) to raise the late payment interest
  * arrange for the CT responsible office to put the struck-off date back on to the record.

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Too many interest accruals to display

15. Where you receive the error message in function RMIC ‘Too many interest accruals to display’, this means that COTAX cannot calculate or raise the interest charge either automatically or clerically.
   
16. You should use function CINT (Compute Interest) to calculate the correct interest charge.
17. Send an e-form to ‘Banking Corporation Tax Unit’ and mark the referral as ‘Interest calculation’, providing details of the interest due and asking for the charge to be raise on the SAFE system.

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Calculation of interest in insolvency cases

18. Where the company is shown as being insolvent, with the exception of voluntary insolvency, interest is charged up to the start date of the insolvency. In voluntary insolvency normal interest rules apply and interest is charged up to the date of payment.
   
19. If the case appears on a work list outside ICHU (Insolvency Claims Handling Unit), you must check with ICHU before raising or amending the interest charge as they may be dealing with the case and have already calculated interest and lodged a claim for it in the insolvency. If they have and confirm that the interest cannot be raised or amended, no further action is needed and the case can be deleted from the work list.
20. If ICHU ask you to raise or amend the interest charge, you should use function RMIC to calculate and raise it to the liquidation start date as displayed in function VTPR.

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Calculation displayed on function RMIC screen COT107C is correct

21. If the details displayed on screen COT107C are correct, raise a clerical late payment interest charge by entering ‘Y’ in the ‘raise / amend interest charge as calculated’ field.
   
22. If you are not sure that the details are correct, enter ‘Y’ in the ‘prepare interest’ field. Select the [OK] button on screen COT107D. Screen COT107E will display the following details.
  * The date interest has been calculated from.
  * The date interest has been calculated to.
  * The number of days interest has been charged for.
  * The interest rate interest has been charged at.
  * The amount of interest charged on each accrual.
23. If the details on screen COT107D are correct, raise a clerical late payment interest charge by entering ‘Y’ in the ‘raise / amend interest charge as calculated’ field.
24. If the details on screen COT107D are incorrect, you can either:
  * abandon the function by selecting the [Exit] button or
  * select the [Prev Panel] button to return to the previous screen.
25. When you have raised a late payment interest charge and the AP becomes overpaid, COTAX displays one of two messages telling you what will happen next.
  * Where the overpayment is to be automatically reallocated or repaid.
  * If the overpayment cannot be dealt with automatically, it advises you which work list the overpayment is on. When you see this message, see step 32.
26. Where a message is not displayed, use function VPPD, view AP summary screen to check if an underpayment exists on the AP. Where the AP remains underpaid after you create a clerical interest charge, see step 33.

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Calculation displayed on function RMIC screen COT107C is incorrect

27. If the details displayed on screen COT107C are incorrect because late payment interest is being calculated on any unpaid tax liability to today’s date and this is not right, you can amend the interest charge by charging late payment interest to a different date on the unpaid liability.
   
  * Enter the correct date in the ‘date interest calculated to’ field.
  * Select the OK button.
  The unpaid liability is denoted by an asterisk ‘*’ in the unpaid column.
28. Where the details on screen COT107C are incorrect and interest has been or will be calculated to an incorrect EDP, use function RMIC to clerically amend it.
  * Enter ‘Y’ in the ‘prepare interest computation’ field.
  * Select the accrual that needs amending and select the [Amend] button.
  * Amend the accrual to date in the dialogue box to the correct date.
  * Select the [OK] button.
29. Check the calculation displayed on screen COT107E carefully and, if correct, raise a clerical late payment interest charge by entering ‘Y’ in the ‘raise or amend interest charge as calculated’ field.
  If the calculation is incorrect, select the [Prev.Panel] button and revise the details you have entered, or exit the function.
30. When you have raised a late payment interest charge and the AP becomes overpaid, COTAX displays one of two messages telling you what will happen next.
  * Where the overpayment is to be automatically reallocated or repaid.
  * If the overpayment cannot be dealt with automatically, it advises you which work list the overpayment is on. When you see this message, see step 32.
31. Where a warning message is not displayed, use function VPPD, view AP summary screen to check if an underpayment exists on the AP. Where the AP remains underpaid after you create a clerical interest charge, see step 33.

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AP is overpaid after raising or amending a late payment interest charge

32. If function VPPD (View Payment and Posting Details), view AP summary screen shows an amount overpaid, use either:
   
  * function REAW (Direct Reallocation Within COTAX) to reallocate the overpayment within COTAX or
  * function REAO (Direct Reallocation Out Of COTAX) to transfer the overpayment to OAS for repayment.
  Send a memo to the CT Unit Cumbernauld providing details of how the repayment is to be disposed of.

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AP is underpaid after raising or amending a late payment interest charge

33. Where you have raised or amended a clerical late payment interest charge, or where the CT Unit Cumbernauld tell you the late payment interest charge is correct, resume normal pursuit action for the collectible amounts as soon as possible.