Processes and procedures: notifying the taxpayer of the statutory interest decision
The taxpayer must be notified of the decision regarding the amount of statutory interest to be paid (or not) in respect of the principal amount repaid. The notification of the decision including the reason for the decision and supporting legislation must be in writing. The taxpayer’s right of appeal must also be clearly set out in the notification, see ESIM7300.
Interest is paid without a deduction of tax so the taxpayer needs to be aware of the direct tax implications. The notification should therefore include the following statement.
‘This statutory interest payment is chargeable to income tax or corporation tax as appropriate.
HMRC has not deducted any tax from the statutory interest payment. The payment will form part of your taxable income or profits and you are obliged by law to notify HMRC on your tax return or otherwise of the amount of interest you have received.
If you are an individual chargeable to income tax this payment will be taxable in the year you receive it.
Companies chargeable to corporation tax should include statutory interest payments as interest on a loan relationship. The period in which the interest will be taxed will, in general, follow the treatment of the interest in the accounts of the company.
The amount of income tax or corporation tax due will depend on your circumstances.’