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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: interest rate

Regulation 3: Rule 9: interest rate

Rule 8 (or if applicable, Rule 8A) gave the result to which an interest calculation was applied to find the additional receipt or expense to be included in taxable profits. This was intended to restore the Exchequer to the position it would have been in had tax been paid on the basis of discounted best estimates in the earlier period, and to compensate the Exchequer or the taxpayer for the delay in receiving tax or a repayment. Rule 9 defined the interest calculation. The interest rate was the rate charged on late payments of corporation tax. This rate was applied on a compound basis. The interest period ran from the CT due and payable date for the earlier period until the due and payable date for the later period. The result of the interest calculation was reduced by reference to the corporation tax mainstream rate (apportioned between financial years if the rate changed), so the additional receipt or expense would at current rates be 70% of the interest calculation. This was to reflect the fact that interest paid or received would normally be taken into account as a deduction or as income in the calculation of taxable profits. As for discount rates, the interest factors relevant for companies with periods of account that end on 31 December were published.

The interest rate was specified as that used in regulation 3ZA(1) of the Taxes (Interest Rate) Regulations 1989. This is the average of the rate applied to quarterly instalments under CTSA, calculated from the due and payable date of the earlier period of account to the due and payable date for the later period of account. The due and payable date is taken as the date nine months after the end of each period, as it would be for companies which do not pay corporation tax in quarterly instalments.

The following figures are rounded to the nearest two decimal places. There was no requirement to do this and calculations based on the full number of decimal places were acceptable.

The interest rates for periods of account ending 31 December are:

period ending 31 December 2001 5.07%
period ending 31 December 2002 4.79%
period ending 31 December 2003 5.07%
period ending 31 December 2004 5.72%
period ending 31 December 2005 5.53%
period ending 31 December 2006 6.28%