SALF306 - Payment of tax: automatic interest and late payment penalties: interest paid on overpayments of tax
Interest on overpayments
ICTA88/S824 (1) & TCGA92/S283 - Section 102 and Schedule 54 FA 2009
Interest is paid on any overpayment of any tax (or payments treated as tax) up to the statutory maximum that the taxpayer is required to pay.
Interest is paid from the ‘relevant time’ until the date of repayment.
With effect from 31 October 2011, interest is paid from the repayment interest start date until the date on which repayment is made.
The relevant time
ICTA88/S824 (3) and TCGA92/S283 (2)
For repayments of:
- capital gains tax
- income tax
- payments on account of income tax required by section 59A
- surcharge, and
- penalties
the relevant time is the date of payment of the tax, payment on account, surcharge or penalty which is being repaid (unless it is tax that was deducted at source) (section 824(3)(a)and (c)).
Where the repayment is of tax deducted at source, for example under PAYE, the relevant time is 31 January following the year of assessment in which the relevant income arose (section 824(3)(b)).
Where the repayment results from a claim:
- to carry back losses etc (TMA70/SCH1B/PARA2)
- for relief for fluctuating profits of farming etc (TMA70/SCH1B/PARA3), or
- for relief for fluctuating profits of creative artists etc (ICTA88/SCH4A)
the relevant time is 31 January following the year that is the later year in relation to the claim (section 824(2C) and (3)(ab)).
The repayment interest start date
Section 102 and Schedule 54 FA 2009
The harmonised interest regime does not materially change the previous position under ICTA 1988. Section 102(3) provides that interest arises between the repayment interest start date and the date of repayment.
The repayment interest start date is defined in Schedule 54.
The general rule is in Paragraphs 2, 3 and 4 of Schedule 54. This provides for the repayment interest start date to be the later of the date on which the amount was paid to HMRC and (where applicable) the date on which the payment became due and payable to HMRC.
Where the repayment is of tax deducted at source for a tax year, for example under PAYE, the repayment interest start date is 31 January next following that year (Paragraph 6 Schedule 54).
Where the repayment arises from a claim to carry back losses or from an averaging claim, the repayment interest start date is 31 January next following the year that is the later year in relation to the claim (Paragraph 7 Schedule 54).