EM6009 - Contract Settlements: Interest: Payments on Account for Post Enquiry SA Year

The guidance about contract settlements at EM6000+ only relates to direct tax. You must never include VAT or VAT penalties in a contract settlement.

When calculating the interest for the enquiry years, section 86 covers amounts becoming payable on or before 31 October 2011, and section 101 and Schedule 53 FA 2009 covers amounts payable from 31 October 2011. You must also consider the effect that an increase in the tax payable will have on the payments on account for the year immediately following the last year that is included in your enquiry.

• If you are finalising the enquiry before the balancing payment date for the post enquiry year follow the procedure in SAM31040 to amend the payments on account on the SA system
• If you are finalising the enquiry after this date you should normally include interest on the increased payments on account in the contract settlement, as in the example below.

Where the return for the post enquiry year has been received, you should suggest to the taxpayer or their agent that this additional interest should be included within the settlement, so that everything relating to the enquiry is included in the offer. If the SA return for the post enquiry year shows a liability less than the sum of the original payments on account, there will be no additional interest to include.

Where the interest is included, you will need to add an additional clause within the letter of offer along the following lines.

'This offer includes the additional interest on the increase to the amounts of the payments on account for the year ..../....’ (post enquiry year)'

If the customer objects or the method is not suitable because for example the post enquiry year return has not been received, you can amend the payments on account on the SA system, see SAM31040

Example

The last year of the enquiry is 2021-22. The original Income Tax liability of £5,000 is increased, as a result of your enquiry, to £7,000. The position for the next year is 2022-23 Agreed Income Tax payable £9,000. Without the enquiry that tax would be payable

31 January 2023	£2,500
31 July 2023	£2,500
31 January 2024	£4,000

As a result of the enquiry, the amounts due and payable will then be

31 January 2023	£3,500
31 July 2023	£3,500
31 January 2024	£2,000

You must therefore include in your settlement

• interest on additional POA1 (3500-2500) £1,000 from 31 January 2022 to 31 January 2023
• interest on additional POA2 (3500-2500) £1,000 from 31 July 2022 to 31 January 2023.

Note: the interest in this example only runs to 31 January 2024, not to the settlement date for the enquiry. This is because the object is not to collect interest on tax which is unpaid for the year. Your computation is simply intended to charge interest on that part of the tax which was paid on or about 31 January 2024 and must have been paid on the earlier payment on account dates.