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HMRC internal manual

Enquiry Manual

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 partly payable, see SAM1110, on the two ‘payment on account (POA)’ 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 should normally 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.

In a straightforward case, see the example below, there will be no increase in the POA’s in the first year of any additions.

This is because any POA for that year is based on what the correct balancing payment should have been for the previous year. This will always be the case where the first year of any additions is the year of commencement.  Where however there were originally two payments on account in the first year of any additions, and these were reduced as a result of the inaccurate return, then interest should be charged from the original POA dates. The POA amount, upon which the interest is charged, cannot exceed 50% of the balancing payment for the previous year.

Example in straightforward case

Additional income tax/NIC agreed as a result of enquiry.

2006-07 (first year of additions) £800
2007-08   £1300
2008-09   £2000

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.

In general you should make sure that any future POAs are reinstated on the SA record, at the close of the enquiry.