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LetsGoSailing
22nd May 2015, 11:50
Hi

I recall a post with the methodology of calculating interest on late tax but my search skills are failing me.

Can someone please explain how interest is calculated? Is the 3% compounded daily, monthly, yearly?

if we take an example of £100 tax due, that is paid 16 months after its due date, how much interest will be incurred?

I get to these numbers, but not sure which is correct.

Daily compounding: £4.08
Monthly compounding: £4.08
Yearly compounding: £4.02

Thanks

Tomandjerry
22nd May 2015, 21:28
HMRC charge 3% simple interest per year, it's not charged on a compound basis. They do however charge this on the number of days since they consider the tax was due I.e. Since the end of the January when the tax return for the year was due.

webberg
22nd May 2015, 22:10
Hi

I recall a post with the methodology of calculating interest on late tax but my search skills are failing me.

Can someone please explain how interest is calculated? Is the 3% compounded daily, monthly, yearly?

if we take an example of £100 tax due, that is paid 16 months after its due date, how much interest will be incurred?

I get to these numbers, but not sure which is correct.

Daily compounding: £4.08
Monthly compounding: £4.08
Yearly compounding: £4.02

Thanks

Use this:

HM Revenue & Customs: Interest and penalty calculator (up to 19 years) (http://www.hmrc.gov.uk/campaigns/19years-calc-stub.htm)

Open with internet Explorer

LetsGoSailing
23rd May 2015, 13:04
HMRC charge 3% simple interest per year, it's not charged on a compound basis. They do however charge this on the number of days since they consider the tax was due I.e. Since the end of the January when the tax return for the year was due.


Use this:

HM Revenue & Customs: Interest and penalty calculator (up to 19 years) (http://www.hmrc.gov.uk/campaigns/19years-calc-stub.htm)

Open with internet Explorer


Thanks both.
That PDF is very useful.

DonkeyRhubarb
24th May 2015, 07:45
These figures are not 100% accurate but near enough.

Tax Year....%......Interest on £10,000
2001/2.......64%........£6,400
2002/3.......57%........£5,700
2003/4.......51%........£5,100
2004/5.......44%........£4,400
2005/6.......37%........£3,700
2006/7.......30%........£3,000
2007/8.......22%........£2,200
2008/9.......17%........£1,700
2009/10......13%.......£1,300
2010/11......10%.......£1,000
2011/12......7%...........£700
2012/13......4%...........£400

Wayt
7th June 2017, 20:05
These figures are not 100% accurate but near enough.

Tax Year....%......Interest on £10,000
2001/2.......64%........£6,400
2002/3.......57%........£5,700
2003/4.......51%........£5,100
2004/5.......44%........£4,400
2005/6.......37%........£3,700
2006/7.......30%........£3,000
2007/8.......22%........£2,200
2008/9.......17%........£1,700
2009/10......13%.......£1,300
2010/11......10%.......£1,000
2011/12......7%...........£700
2012/13......4%...........£400

Sorry for the bump but I was looking for some information on this subject and came across this post. Sure these figures wouldn't actually apply. I thought that unless there is some fraud involved HMRC can only go back 4 years to recover taxes that have not been paid?

Silverskin
8th June 2017, 08:51
Sorry for the bump but I was looking for some information on this subject and came across this post. Sure these figures wouldn't actually apply. I thought that unless there is some fraud involved HMRC can only go back 4 years to recover taxes that have not been paid?

I'm sure others will comment more accurately on this but I understand that you're correct for closed years but for open years the interest will apply regardless of the length of time that has passed (broadly speaking)

webberg
9th June 2017, 16:22
Sorry for the bump but I was looking for some information on this subject and came across this post. Sure these figures wouldn't actually apply. I thought that unless there is some fraud involved HMRC can only go back 4 years to recover taxes that have not been paid?

Only for closed years.

If the year is open (enquiry, discovery assessment, COP8 - HMRC claim) then they can go back as far as the due date for the year.

Wayt
10th June 2017, 18:03
Please excuse my ignorance but what is a closed year exactly?

It's not a term I'm familiar with.

For example I received a tax rebate last year and hmrc gave me £200 back. Would that mean that last year is closed? How do you know if a year is open or closed?