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HMRC internal manual

Savings and Investment Manual

Interest: voluntary payments

Voluntary payments are not interest

Since interest can only accrue by virtue of some right, a voluntary or gratuitous payment cannot be interest, even if it is expressed as in lieu of or ‘equivalent to half the interest’, as in the case of Seaham Harbour Company v. Crook (16TC333). J Rowlatt’s comment that

“interest or an annual sum which is paid really benevolently each time is merely an allowance, and not taxable at all”

is a reflection of that common-law principle.

Truly voluntary payments are likely to be rare. For instance where compensation is paid, labels such as ‘ex gratia’ may only mean that the payer settled out of court, or ‘without admitting liability’. Such a payment is not voluntary or gratuitous if made in consideration of the claimant giving up the right to take proceedings for the damage suffered. See SAIM2330 for more on compensation or damages generally.