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HMRC internal manual

Debt Management and Banking Manual

Interest: interest on late payments: common period rules

Common Period Rules 

Note: The common period rules apply only to Self Assessment and Corporation Tax

The common period rules were developed following the introduction of differential interest rates for the charging of interest on late payment and paying interest on overpayments. Prior to the introduction of differential rates the rate of interest for late payments and interest paid on reallocations and repayments was the same.

For those years that the rates were the same, if a reallocation from one charge to another involved the calculation of repayment interest on the overpayment and late payment interest when allocating the overpayment to the second charge the common period need not be addressed. In these circumstances the customer will receive an amount of repayment interest equivalent to the late payment interest charged and is not disadvantaged.

For those years that differential rates apply, when a reallocation is being made from one charge to another and the receiving charge is already overdue the common period rule must be applied. For example if today’s date is the 1 June 2007 and an overpayment has arisen on which repayment interest is being calculated from 15 March 2007, if another charge is outstanding and was due for payment on the 1 May 2007 the repayment interest on the overpayment will be calculated to 1 May 2007. Also the effective date of payment for the amount, or amounts, making up the overpayment are amended to 1 May 2007. This ensures that in any future reallocation/ repayment there is no duplication of repayment interest. This process is different for reallocations in SAFE as the EDP is not changed but the payment is ‘noted’ with the details of any period for which repayment interest has been calculated.

The purpose of applying the common period rule is to prevent a situation where a customer, who has overpaid and also has an outstanding debt, does not incur a net interest charge, being the difference between the late payment interest and the repayment interest on the amount to be reallocated. The common period is the time during which repayment interest due on an overpayment overlaps the period of accruing interest on the charge receiving the overpayment.