Contract Settlements: Interest: Calculation for SA Years
The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.
At the time you provide the taxpayer with your calculation of tax and NIC lost, you should also calculate the interest arising under TMA70/S86.
If you are dealing with a pre-6 April 1994 partnership (an ‘old’ partnership) for 1996/97 see however EM4010+.
For SA years, income tax/NIC is usually payable, partly on the two ‘payment on account’ dates under TMA70/S59A, and partly on the balancing payment date under TMA70/S59B. Where additional tax/NIC has been agreed for a number of years, interest for each year after the first should be calculated from the three relevant dates for each year. Each payment on account is normally based on half of the additional income tax/NIC for the previous year.
There is a SEES program to help you perform these calculations.
Example in straightforward case
Additional income tax/NIC agreed as a result of enquiry.
|2006-07||(first year of additions)||£800|
Interest should be calculated from the following dates.
|on balancing payment||£800 from 31 Jan 2008|
|on POA1||£400 from 31 Jan 2008|
|on POA2||£400 from 31 July 2008|
|on balancing payment||£500 from 31 Jan 2009|
|on POA1||£650 from 31 Jan 2009|
|on POA2||£650 from 31 July 2009|
|on balancing payment||£700 from 31 Jan 2010|
Note: that if the additional payments on account exceed the original liability for the year, you will need to do a full calculation, setting out all of the original and revised payable amounts.
Examples for less straightforward cases are at SALF305.
As regards interest on the increased Payments on Account for the post enquiry year see EM6009.