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HMRC internal manual

Tax Credits Technical Manual

Interest: Statutory Interest - A worked example

At the end of an examination we invite a letter of offer from a person to cover £3,500 overpaid credits, which are recoverable in-year and also a £750 penalty. Forty-five days have already elapsed since they received the revised decision notice and they asked for 150 days for payment as they need to sell some shares to pay the settlement. We have agreed this is reasonable as the shares cannot be sold any sooner. By the time payment is likely to be made 195 days will have passed since the date on which he received the revised decision notice and he will have had 150 days to pay the penalty. If the interest rate is 3% the interest charge will be:

Interest on overpaid tax credits: £3,500 x 3% x 165/365  
Interest on penalties: £750 x 3% x 120/365 = £7

Total Interest = £54

If the offer related to an enquiry for 2009/2010 rather than to an in-year examination and you are settling it after 30 August 2010, the interest on the overpaid credits will run from the 30 August 2010 until the expected date of settlement without discounting the first 30 days.