IHTM31665 - Assessing: repayments: interest supplement
Under IHTA84/S235, any repayment of tax or interest itself attracts interest
- from the date on which the payment was made
- up to the date the repayment order is issued.
The extra payment, which is made as compensation to the taxpayer for the delayed repayment, is called ‘interest supplement’. The supplement is paid regardless of:
- whether the sum is actually repaid to the taxpayer or agent or is repaid notionally by applying it towards a calculation of tax payable
- the fact that the taxpayer or agent may not have paid any interest on the tax overpaid.
You must decide the appropriate dates from which the interest supplement starts. You will need to calculate the interest supplement due to a date five working days in advance of the date you prepare the repayment.
What you need to do
At the appropriate section of the Sect 6 (IHTM31641) enter,
- the amount on which the supplement is due
- the start date for the interest supplement,
- the end date for the interest supplement.
More than one payment made
If there has been only one payment at your entry, the date of that payment is the start date for interest supplement.
If there have been a number of assessments and payments at that entry, repay the amounts in chronological order, on a ‘last in, first out’ basis.
This means that you will calculate interest supplement from the later dates of payment first, irrespective of whether the payments related to tax or interest.
Example
The deceased died on 25 November 2012
- as well as tax on failed PETs (IHTM14512), tax was paid on the free estate on delivery of the account on 20 January 2013 of £50,000 on A (NIOP) and £2,000 on A(IOP).
- Further tax and interest was paid following assessed adjustments of £5,000 on A(NIOP) and £21,000 on A (IOP) on 6 June 2013
The amount now repayable is £12,000 on A (NIOP).
Your instructions on the Sect 6 should be to allow interest on £12,000 from 6 June 2013.
Last-in, first-out principle: tax and interest
The purpose of a repayment is to put the taxpayer in the position that they would have been in if the correct values had been known at the outset. The principle of adding the repayment supplement is for the Exchequer to compensate the taxpayer for not having the use of the money while it was in our hands. How we applied that money - whether against tax or interest - is irrelevant. The only questions we need to ask are:
- have we had the use of money to which we were not entitled, and
- for what period?
Example
£10,000 tax was due on 30 June 2012, but paid on 13 January 2013. Interest was then assessed at £161.48 and paid on 10 March 2013.
The IHT liability was subsequently reduced to £8,000. If the correct amount of tax had been paid from the start, the interest charge would have been £129.18. So we would have been entitled to £8,129.18 from the estate.
The taxpayer paid £10,161.48, so a repayment is due of £2,032.30. This is the amount that we had the use of but were not entitled to. We need to compensate the taxpayer by giving them an interest supplement on £161.48 from 10 March 2013 and the remainder from 13 January 2013.
It would not be correct to pay interest supplement from 13 January 2013 on the tax that was overpaid. At that time, if the correct position had been known the amount owed was £8,129.18, but £10,000 was paid. So, from that date only £1,870.82 (not £2,000) had been overpaid and interest supplement can only be paid on that amount from that date.