Assessing: calculating interest: money on deposit
You must apply any money on deposit (IHTM31751) firstly in satisfaction of the tax due. Apply any balance that is left against the interest.
If the taxpayer or agent expressly requests that the deposit is applied against tax only (as it stops the interest charge running), you must not apply the deposit against interest.
You should charge interest only up to the date of the deposit. If the tax is not entirely covered by the deposit, charge interest on the remainder up to the date of the calculation (or due date, if later).
Tax is due on 31 May 2012 of £20,000
A deposit is received on 15 August 2012 for £5,000
On 20 September 2012 we prepare a calculation.
The interest is calculated as follows:
from 1 June 2012 to 15 August 2012 on £20,000 = £124.59
from 16 August to 20 September on £15,000 = £44.26
The total interest charge is £168.85
The calculation of tax and interest is:
- Tax due £20,000
- Less deposit - £5,000
- Plus interest + £168.85
- Total to pay £15,168.85