Interest: how interest is calculated: clerical calculation of credit or debit interest
COTAX does not automatically calculate or charge credit interest or debit interest where:
- the ‘credit / debit interest’ indicator (CDII) is set or
- there is a ‘date struck off’ on record and this date has passed.
Reallocations of payments using functions REAO or REOD (Reallocation Out Of COTAX)
COTAX does not automatically calculate or recalculate credit and debit interest where money is reallocated from a CTSA AP to OAS using either functions REAO or REOD (Reallocate Out Of COTAX).
Where a payment is moved from COTAX to OAS, COTAX cannot calculate credit or debit interest correctly as it cannot identify where the monies’ final destination will be. Because of this, it is unable to apply common period rules which affect the charging of interest.
Where you reallocate out of COTAX, you receive a warning that your action will affect the credit or debit interest and that you must set the ‘credit / debit interest’ indicator (CDII) and have the interest position reviewed clerically.
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 as 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.
Calculating and raising a manual interest charge
The CT Unit Cumbernauld and Debt Management Offices use function RMIC (Raise Manual Interest Charge) to raise or amend a credit or debit interest charge using:
- the payment details.
- for a quarterly instalment AP, the quarterly instalment payment and instalment due date (Word 42KB)
- for a non-QIP case, the normal due date.
Before you reduce an interest charge, you must get authority on the appropriate form.
- AZ44, 987, IRU1 in the CT Unit Cumbernauld.
- AZ63 in Debt Management Offices.
The form tells you why the original calculation was wrong.
You do not need this authority if you work in a Debt Management Office and are responsible for lodging the HMRC claim in insolvency cases.
Function RMIC (Raise Manual Interest Charge) is used to raise or amend an interest charge clerically in the CT Unit Cumbernauld where the CDII is set to ‘Y’ and the pursuit status is:
- RFI or PRFI or
- LA, LA-ENF or PLA and COTAX is unable to calculate interest correctly on a carry-back or where S458 CTA 2010 (formerly S419(4) ICTA 1988) relief has been granted.
Debt Management Offices use RMIC where the CDII is set to ‘Y’ and the pursuit status is LA, LA ENF or PLA.
Function RMIC is the only interest function that updates the company’s COTAX record.
Function CINT (Compute Interest) is an interest calculator that provides a computation of interest for credit or debit interest. The interest computation is based on the notional dates and amounts entered on to the screen.
You can use the calculator to calculate interest for either quarterly instalment payment (QIP) cases or non-QIP cases. For a QIP case you need to indicate that the accounting period (AP) is a QIP AP and then enter the details of the case. The calculator will calculate the due dates and instalment amounts for each quarter along with the credit or debit interest due. For a non- QIP cases you need to indicate that the AP is a non-QIP AP and again enter details of the case and the calculator will calculate the credit interest due.
You do not need to enter a company reference and details of the computation do not update the company record.
See COM82000 if you receive an objection to the interest charge.