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HMRC internal manual

Tax Credits Technical Manual

HM Revenue & Customs
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Statutory Interest: Introduction

The Tax Credits Act 2002, Section 37

HMRC, in common with most other organisations and businesses, charges interest when it receives money late. Interest is not intended to be a penalty, it is commercial restitution for the Exchequer being denied the use of the money.

In the case of tax credits, interest is only chargeable where there has been fraud or neglect. You will encounter interest in two situations:

s37(5) interest on penalties - A penalty under any of sections 31 or 32 carries interest at the prescribed rate from the date on which it becomes due and payable; but the Board may in their discretion mitigate any interest or entirely remit any interest which would otherwise be carried by a penalty.

s37(1) interest on overpaid tax credits - If an overpayment of a tax credit for a period is attributable to fraud or neglect on the part of the person, or either or both of the persons, to whom the award of the tax credit was made (or a person acting for him, or for either or both of them, in making the claim for the tax credit), the Board may decide that the whole or any part of the overpayment is to carry interest.

A letter must be sent to the claimant(s) advising them of the decision to charge interest and the date on which it becomes due and payable. The letter must also explain that they have a right of appeal against the decision to charge interest.