Contract Settlements: Interest: Certificates of Tax Deposit - General
The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.
When you identify that additional tax and NIC likely to be due in an enquiry case you will normally ask for a general payment on account.
There is, however, nothing to prevent a taxpayer from tendering a Certificate of Tax Deposit (CTD) either as a payment on account or as whole or part of the final settlement.
CTD’s are not available for purchase on or after 23 November 2017 when the scheme was closed. Existing CTD’s will continue to be honored for six years..
The use of a CTD will affect the interest computation and if there is any hint that the taxpayer intends to use a CTD you must find
- how the Tax Deposit is to be used
- the amount of the Tax Deposit to be applied to the settlement
- the date the Deposit was made, and
- the serial number of the CTD.
It is for the taxpayer to decide how the Tax Deposit is to be used and not for you to offer advice.
The Tax Deposit can be
- set against tax becoming due (by reference to its normal due date) after the date of the Tax Deposit, or
- set against tax becoming due before the date of the Tax Deposit, or
- set against any other liability (such as NIC, interest or penalties), or
The treatment of interest is described below, depending on whether the CTD is applied against
Tax with a due date after the date of the deposit
Interest will be given by the CTD Team (Cumbernauld) at the higher encashment rate from the date of the Tax Deposit to the due date. The amount allocated against the tax liability is such part of the The Deposit as, together with interest on itself, equals that tax. The tax is then treated as paid on the due date and no interest will be claimed on that part of the tax.
Tax with a due date on or before the date the deposit was made
No interest will be given on that part of the Tax Deposit. The tax is treated as paid on the date the Deposit was made and interest on the tax up to that date will be included in the settlement.
Excepted tax (mainly PAYE and similar deductions) NIC, interest or penalties
If used against interest bearing liabilities - the lower encashment rate of interest will be allowed to the date from which interest would be charged and the liabilities will be treated as paid on that date. If the certificate was purchased after the date from which interest would be charged, no interest will be allowed on the certificate and the liabilities will be treated as paid on the date on which the certificate was purchased.
If used against non interest bearing liabilities - the lower encashment rate of interest will be allowed to the settlement date and the liabilities will be treated as paid on that date.