Interest: meaning of interest
The legal concept of interest
Interest is not defined in the Taxes Acts. It is a concept of common and contract law. Halsbury’s Laws of England defines it as follows.
“Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. Interest accrues from day to day even if payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal.”
While there can be no such thing as interest without the requisite principal (a sum of money advanced or a debt incurred) there is no requirement that such principal has to carry interest. In common law the general rule is that interest is not payable on a debt or a loan; except where
- there is an express agreement to pay interest,
- an agreement to pay interest can be implied from a course of dealing between the parties, or from the nature of the transaction, or custom or usage of the trade or the profession concerned, or
- in certain cases by way of damages for breach of a contract (other than a contract merely to pay money) where the contract, if performed, would to the knowledge of the parties have entitled the parties to receive interest.