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HMRC internal manual

# Assessing: repayments: IOP without interest relief

The procedures are best explained by the following example.

## Example

The due date for tax is 30 June 2010

• On 30 June 2010 we issue a calculation for the first instalment of tax on the IOP. Tax due on the whole of the IOP is £20,000, so tax of £2,000 is due on the first instalment. As the calculation is issued before the due date no interest is due.
• On 30 June 2011 a calculation for the second instalment is issued. No interest was due on the instalment itself but interest was payable on unpaid tax (£20,000 - £2,000) from 1 July 2010 to 30 June 2011 = £538.52.
• On 30 June 2012, a calculation for the third instalment is prepared. The total tax on the IOP is reduced to £16,000. So the tax now due is three tenths of £16,000 = £4,800 less tax already assessed (£4,000) = £800. No interest is payable on the instalment itself. But, interest is payable on unpaid tax (£16,000 - £4,000) from 1 July 2011 to 30 June 2012 = £360.00. Interest must also be repaid on the decrease in total tax (£20,000 - £16,000) from the original due date (1 July 2010) to the date it was last paid (30 June 2011) = £119.67.
• In this situation the taxpayer does not automatically get a credit for supplementary interest on the interest repayable of £119.67 because there is no repayment warrant. To compensate for this you must make an adjustment to the interest charge. Treat the interest repaid as a deposit.
• So, assuming that the effective date of payment was 15 August 2011 the adjustment would be:
• (on £119.67 from 15 August 2011 to 30 June 2012) to the date of the last instalment (30 June 2012) at the lower repayment rate for interest = £0.53
• The total amount of tax and interest due is:
• Tax + £800.00
• Interest due on unpaid tax + £360.00
• Less interest to be repaid - £119.67
• Less interest supplement -£0.53
• Total due £1039.80