Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

COTAX Manual

From
HM Revenue & Customs
Updated
, see all updates

Interest: how interest is calculated: credit or debit interest

Credit interest and debit interest are the Departmental terms for interest payable to or chargeable for quarterly instalment payment (QIP) cases during the QIP period from the first instalment due date (Word 42KB) to the normal due date (Word 49KB). However, credit interest is also payable to non-QIP cases on tax paid before the normal due date.

If the company is not required to pay by instalments, credit interest is calculated to the normal due date from the later of:

  • the first quarterly instalment due date, or what would be that due date if the company were liable to make such payments
  • the effective date of payment (EDP).

Where the company is identified as a QIP case, that is the ‘quarterly instalment payment’ (QIP) signal is set to Y, both credit and debit interest are calculated on each quarterly instalment. Credit and debit interest are calculated on the overpaid or underpaid amount for each instalment from the quarterly instalment due date for the AP for that quarter to the date on which the over or underpayment no longer exists, that is another payment or repayment is made or a later instalment becomes due.

Credit interest is paid at a higher rate than repayment interest and is taxable in computing profits for CT purposes like other forms of interest receivable. Repayment interest is not given on credit interest.

Credit and debit interest are automatically calculated once both the following conditions have been met.

  • The tax charge has been recorded.
  • The normal due date has passed.

You must do the calculation clerically where credit or debit interest is to be given before the normal due date.

Credit or debit interest before the normal due date

You can calculate credit or debit interest before the normal due date where the company make a request for it to be paid, so long as a tax charge has been recorded and the tax charge has been satisfied in full.

Where the company is noted as being an instalment payer and there is no outstanding overpayment on the accounting period, you can calculate the full amount of the credit or debit interest and post this on AP. Where an overpayment has not been repaid or reallocated, contact the CT responsible office and ask them to deal with it first so you can include any interest due on the overpayment in your calculations.

Where the company is not noted as being an instalment payer, advise the company that you cannot calculate the full amount of credit interest due until the normal due date (NDD) because of potential interest rate changes.

Section 342(3A) ICTA 1988 says that in the case of a company in liquidation, any income in its final accounting period that consists of interest received or receivable under S826 not exceeding £2,000, is not chargeable to Corporation Tax.

Debit interest is payable at a lower rate than late payment interest and is deductible in computing profits for CT purposes like other forms of interest payable.

Credit or debit interest is not charged on either:

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

Top of page

Viewing credit or debit interest

Function VPPD (View Payment and Posting Details) summary screen displays the total amount of debit and late payment interest raised automatically and clerically under ‘net charge’ ‘interest’. Credit interest is included under ‘paid’ ‘tax’. On the postings screen, credit and debit interest type postings are identified by the abbreviations ICR and IDB respectively.

The notes column on VPPD, view AP postings screen, identifies the operator who raised or amended a clerical interest charge. Credit interest accrual details can be viewed by selecting an ICR posting from the AP Summary screen.

Function DINT (Display Interest Computation) displays accrual details of credit and debit interest.

Where credit or debit interest has been charged, the reconciliation statement with all assessment output and penalty determinations shows the total of debit interest charged and late payment interest charged or accruing as one sum under ‘Interest due including any debit interest’. Credit interest is not shown separately but is included in the payments made figure.

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.