Settlement TTP - does forward interest only apply to open years? Settlement TTP - does forward interest only apply to open years?
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  1. #1

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    Default Settlement TTP - does the interest only apply to open years?

    TTP interest is currently 4.25% (3.25% + 1%). From this post by Delendog, it sounds like the interest is calculated up front, for the duration of the agreed settlement TTP, and then added to the debt to calculate the repayments.

    https://www.contractoruk.com/forums/...ml#post2574091

    If you've got a mix of open and closed years, does the interest only apply to the open years? Or does it apply to the entire tax debt?
    Last edited by stonehenge; 12th August 2019 at 08:16.

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    Example

    Open years £40k tax
    Closed years £60k tax
    Accrued interest to date £20k
    TTP over 5 years (60 months)

    Is it A or B?

    A

    TTP interest = 40k * 4.25% * 5 = 8.5k

    Monthly repayments = (100k + 20k + 8.5k) / 60 = £2141.67

    B

    TTP interest = 100k * 4.25% * 5 = 21.25k

    Monthly repayments = (100k + 20k + 21.25k) / 60 = £2354.17

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    It’s b

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    Quote Originally Posted by stonehenge View Post
    Example

    Open years £40k tax
    Closed years £60k tax
    Accrued interest to date £20k
    TTP over 5 years (60 months)

    Is it A or B?

    A

    TTP interest = 40k * 4.25% * 5 = 8.5k

    Monthly repayments = (100k + 20k + 8.5k) / 60 = £2141.67

    B

    TTP interest = 100k * 4.25% * 5 = 21.25k

    Monthly repayments = (100k + 20k + 21.25k) / 60 = £2354.17
    Your calculation is wrong

    TTP FI will be (40+20)*4.25%*(5/2)=6.375K

    Monthly = (60+40+20+6.375)/60 = £2106.25

    HMRC have not communicated that FI is not payable on the TTP for closed years BUT they have on a number of settlements seen on LCAG and the calculations show this.
    Last edited by Delendog; 12th August 2019 at 09:13.

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    Quote Originally Posted by Delendog View Post
    TTP FI will be (40+20)*4.25%*(5/2)=6.375K
    Can you explain this. Where does the 20 and 5/2 come from?

    If the 20 is the interest already accrued to date, I thought they didn't charge interest on interest?

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    Quote Originally Posted by stonehenge View Post
    Can you explain this. Where does the 20 and 5/2 come from?

    If the 20 is the interest already accrued to date, I thought they didn't charge interest on interest?
    The 20 is the interest on the open years you have said is due in your example. The 5/2 is the 5 years it is divided by 2 to create the correct interest over 5 years as the debt starts at the maximum interest on the full amount but the debt reduces over the term down to zero - just like a repayment mortgage.

    They don't charge compound interest BUT the interest for tax on the open years is a debt that attracts interest for TTP - haven't seen examples where this hasn't been applied, have you?
    Last edited by Delendog; 12th August 2019 at 10:19.

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    Quote Originally Posted by Delendog View Post
    The 20 is the interest on the open years you have said is due in your example. The 5/2 is the 5 years it is divided by 2 to create the correct interest over 5 years as the debt starts at the maximum interest on the full amount but the debt reduces over the term down to zero - just like a repayment mortgage.

    They don't charge compound interest BUT the interest for tax on the open years is a debt that attracts interest for TTP - haven't seen examples where this hasn't been applied, have you?
    Got you. Bit tight of them to charge TTP interest on the interest already accrued. Makes it even more expensive settling open years.

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