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HMRC internal manual

COTAX Manual

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HM Revenue & Customs
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Payments: quarterly instalment payments: credit / debit interest

Credit interest and debit interest are Departmental terms. They refer to interest payable to or interest chargeable on quarterly instalment payment (QIP) cases during the QIP period from the first instalment due date to the normal due date.

Credit interest is:

  • paid under S826 ICTA 1988 (as extended by Regulation 8 of the CT (Instalment Payments) regulations 1998 (SI 1998 No 3175)
  • also payable to non-QIP cases on tax paid before the normal due date. Credit interest cannot run from a date earlier than what would be the first instalment date if it were liable to make instalment payments.

Debit interest is charged under S87A TMA 1970 (as extended by Regulation 7 of the CT (Instalment Payments) regulations 1998 (SI 1998 No3175).

Credit and debit interest is not charged on penalties or interest itself or tax which is stood over or suspended.

COTAX calculates credit and debit interest based only on the value of the’ QIP’ signal.

Where the company is identified as a QIP case, you or COTAX set the ‘QIP’ signal to Y. COTAX then automatically calculates debit and credit interest unless the ‘credit / debit interest’ indicator (CDII) (Word 29KB) is set. It carries out the calculations when:

  • a company has filed its self assessment or we have made a revenue determination of its CT liability and
  • the normal CT due date for the AP has passed.

However, if the company’s accounting period is linked to an open group payment period for a Group Payment Arrangement, credit and debit interest are not calculated and posted until the group payment period is cleared. For more information see COM96000 onwards.

The tax paid at the time of each monetary event on the record, that is payment, repayment and instalment due date, is compared with the amount that the company should have paid at that time, and credit or debit interest is calculated on the over or under-paid balance. See COM80000 onwards. You can view the automatic calculation of credit and debit interest in function DINT (Display Interest Computation).

When a company makes payments which are early or excessive, credit interest runs for every day from the date on which the overpayment arises, or the due date for the first instalment payment if this is later, to the earlier of:

  • the date on which the overpayment is extinguished, that is repaid or a later instalment becomes due or
  • the CT normal due date.

The EDP for credit interest is always the normal due date for the AP.

Credit interest never runs from a date earlier than the due date for the first instalment payment.

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.

Where credit interest originally calculated and posted requires amendment downwards, usually because of an increase in the tax liability, automatic processing amends the interest charge, showing the amount as a negative credit interest posting.

When a company makes payments which are late or inadequate, debit interest runs for every day from the instalment due date to the earlier of the:

  • date the underpayment is extinguished, that is paid or a later instalment becomes due or
  • normal CT due date.

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.

Detailed worked examples of the calculation of credit and debit interest are in the Company Taxation Manual (CTM) at CTM92710-92730.

You should refer credit and debit interest objections to the CT Unit Cumbernauld for attention where the AP is not, and was not previously, working with the Recovery Office. For more information see COM82000 onwards.

Overpayments and underpayments of CT that exist beyond the normal due date attract repayment interest and late payment interest respectively.

Where credit interest is repaid, it is separately identified. If debit interest is charged, paid then reduced and the excess repaid, it is separately identified from any late payment interest being repaid.

Where the ‘credit / debit interest’ indicator (CDII) is set, COTAX does not calculate credit or debit interest automatically. The CT Unit Cumbernauld or the Debt Management Office raise the charge using function RMIC (Raise Manual Interest Charge). You can calculate credit, debit and charge interest on notional amounts and dates using function CINT (Calculate Interest). Calculations made using this function do not use data from any COTAX record and are not posted to a record.

For more information see COM80000 onwards.

CDII may be set by:

  • the CT Unit Cumbernauld or the Debt Management Office using function RAPP (Revise AP Pursuit)
  • a Technical Caseworker using function MAPS (Maintain AP Signals).

The caseworker needs to set the CDII signal where, for example:

  • whenever they recognise that COTAX will use one or more incorrect instalment dates in the calculation of credit and debit interest for an AP
  • accelerated payments are agreed. For more information see COM95010.

The summary screen in function VPPD (View Payment and Posting Details) 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. You can view credit interest accrual details by selecting an ICR posting on the postings screen.

Credit and debit interest are not separately distinguishable in payment applications and reconciliation statements. Credit interest is aggregated with payments and may form part of an overpayment. Debit interest is aggregated with late payment interest and may form part of an underpayment.

See:

  • COM95011 for a list of functions to use in particular situations
  • COM95012 for legislation applying to this subject.