INTM489970 - Diverted Profits Tax: notification, charging and payment: True Up interest

Although computed in the same way as late payment interest, by reference to the amount of DPT, “true up interest” is in fact a component of the tax charge. Its purpose is to ensure broad equity between cases in which notices are issued promptly after the end of the relevant accounting period, on one hand, and cases in which the issue of notices may be delayed for whatever reason.

Because a preliminary notice may be issued up to 24 months from the end of an accounting period in a s86 case, 6 months from the last date a company can amend its return in a s80, or 81 case, or up to 4 years from the end of an accounting period in discovery cases, and because DPT does not become payable until 30 days after the issue of a charging notice (which follows the 30 day period for representations against a preliminary notice and a further 30 days for consideration of those representations and issue of a charging notice), the potential interest disparities that might arise could be significant. The “true up interest” component of the tax charge is designed to offset this.

For example, assuming a 12-month accounting period ending on 31 December 2017, the position in two comparable cases could be:

• Case A: Preliminary notice issued 31 March 2018. Following representations and HMRC consideration, charging notice issued 31 May 2018. DPT due and payable 30 June 2018.
• Case B: Preliminary notice issued 31 March 2019. Following representations and HMRC consideration, charging notice issued 31 May 2019. DPT due and payable 30 June 2019.

In both cases, late payment interest (see below) will run from the due and payable date and, absent any further provision, the company in Case B would obtain a 12-month interest advantage over the company in Case A.

“True up interest” mitigates or eliminates this advantage in all affected cases because it is calculated by reference to a notional period that begins six months from the end of the relevant accounting period and ends on the day that the charging notice is issued. In case B, this would mean that “true up interest” would run from 30 June 2018 to 31 May 2019 and form part of the tax charge included in that notice.