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HMRC internal manual

International Manual

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Double Taxation Applications and Claims: repayment interest: How repayment interest is calculated for an accounting period that exceeds 12 months

Period over 12 months

Where a company prepares accounts for a period that exceeds 12 months its accounting period ends, for UK tax purposes, 12 months from the beginning of the accounting period. This means that where a company in an EEA member state or associated territory prepares accounts for a period exceeding 12 months there will be two (or more) accounting periods to consider when calculating repayment interest.

If a company prepared accounts for the period 1 July 2010 to 31 December 2011 its accounting periods for the purposes of calculating repayment interest are

  • 1 July 2010 to 30 June 2011 and
  • 1 July 2011 to 31 December 2011.

Example 1

Form Spain/Company received on 1 February 2011 from a company in Spain to reclaim the UK income tax (less 10%) that was deducted from royalties paid to them by a UK company on 30 April 2009 and 30 October 2009. Repayment was made on 31 March 2011. The Spanish company received the royalties in their accounting period 1 July 2008 to 31 December 2009.

You will have to make two separate repayment interest calculations.

Calculation 1 - for the accounting period 1 July 2008 to 30 June 2009

As the accounting period is 1 July 2008 to 31 December 2009, a period that is over 12 months, the first accounting period end date was 30 June 2009, 12 months from the beginning of the accounting period. In this accounting period the Spanish company received one royalty payment, on 30 April 2009. Repayment interest is due from 1 July 2009 to 31 March 2011 on the repayment relating to this royalty payment.

Calculation 2 - for the accounting period 1 July 2009 to 31 December 2009

The royalty payment made on 30 October 2009 was received in the accounting period 1 July 2009 to 31 December 2009. Repayment interest is due from 1 January 2010 to 31 March 2011 on the repayment relating to this royalty payment.

Example 2

Form IRL/Company received 10 November 2011 from an Irish company to reclaim the UK income tax that was deducted from interest paid to them by a UK company on 30 June 2009, 31 December 2009, 30 June 2010 and 31 December 2010. Repayment of the UK income tax was made on the 5 December 2011. The accounting period’s for the Irish company in which the interest was received was 1 January 2009 to 30 June 2010 and 1 July 2010 to 30 June 2011.

You will have to make three separate repayment interest calculations.

Calculation 1 - for the accounting period 1 January 2009 to 31 December 2009

As the accounting period is 1 January 2009 to 30 June 2010, a period that is over 12 months, the first accounting period end date will be 31 December 2009, 12 months from the beginning of the accounting period. There were 2 interest payments made in this accounting period, on 30 June 2009 and 31 December 2009. Repayment interest is due from 1 January 2010 to 5 December 2011 on the amount of the repayment that relates to these interest payments.

Calculation 2 - for the accounting period 1 January 2010 to 30 June 2010

The interest payment made on 30 June 2010 was paid in the period 1 January 2010 to 30 June 2010. Repayment interest is due on this interest payment from 1 July 2010 to 5 December 2011.

Calculation 3 - for the accounting period 1 July 2010 to 30 June 2011

The interest payment made on 31 December 2010 was paid in the accounting period 1 July 2010 to 30 June 2011. Repayment interest is due from 1 July 2011 to 5 December 2011 on the repayment relating to this payment.