This chapt er looks at int er est and in par t icular it cover s:
- int er est on lat e paid t ax and r epayment s;
- t he ef f ect of amount s car r ied back.
C7.1 Introduction
I nt er est r uns from the due date of payment to the day before the actual date of payment of t he t ax wher e cor por at ion t ax is paid lat e.
s.97A TMA 1970
s.826 I CTA 1988
This applies t o all payment s of cor por at ion t ax – whet her t he company pays by inst alment s or not . So small companies, who ar e r equir ed t o pay t heir t ax 9 mont hs and 1 day af t er t he end of t he account ing per iod, will also be char ged int er est wher e t hey pay t hat t ax lat e.
Pr oblems ar e exper ienced par t icular ly by lar ger companies, as tax due by instalments is based on the tax liability of the current year, yet t he payment s ar e made dur ing t he year . A company will t her ef or e have t he pr oblem of estimating its tax bill, which could well change dur ing t he year , so what t hey pay may not r ef lect t heir act ual liabilit y. I f t hey do not pay enough, int er est will r un. I f t hey pay t oo much, t hey will get r epayment int er est , but at a lower r at e.
Illustration 1
Guesswor k Limit ed est imat es it s pr of it s f or t he year ended 31 May 2007 t o be
£ 2 million when it makes it s f ir st inst alment of cor por at ion t ax.
As t his is a 12 mont h CAP each inst alment will be 3/ 12 x 100% = 25%. The amount of t ax due on 14.12.06 will t her ef or e be:
£ 2,000,000 x 30% = £ 600,000 x 25% = £ 150,000
At t he beginning of Mar ch t he company wins a maj or new cont r act which is likely t o incr ease t he company' s pr edict ed pr of it f or t he year t o £ 2.2 million. For it s second inst alment due on 14.3.07 t he company would be advised t o make a payment as f ollows:-
£ 2,200,000 x 30% = £ 660,000 x 50% = £ 330,000 Less t ax paid on 14.12.06 (150,000)
£180,000
By t he end of t he account ing per iod t he dr af t account s r eveal a t axable pr of it of
£ 2.25 million. The company should t her ef or e pay t ax as f ollows on 14.6.07 in r espect of it s t hir d inst alment :
£ 2,250,000 x 30% = £ 675,000 x 75% = £ 506,250 Less t ax paid so f ar (330,000)
£176,250
By t he end of August t he company has been audit ed and t he pr of it or iginally ant icipat ed has been r educed t o £ 2.15 million. The company should t her ef or e pay t ax as f ollows on 14.9.07 in r espect of it s f our t h inst alment :
£ 2,150,000 x 30% = £ 645,000 x 100% = £ 645,000 Less t ax paid so f ar (506,250)
£138,750
The company pr epar es it s f inal cor por at ion t ax comput at ions by t he end of Febr uar y 2008, which show a f inal t axable pr of it of £ 2,190,000.
The company t her ef or e pays t ax as f ollows on 1.3.08:
£ 2,190,000 x 30% = £ 657,000 Less t ax paid by inst alment s (645,000)
£ 12,000 I t is nor mal f or a company t o keep revising its estimated corporation tax liability in t his way.
Payment s Summar y:
Paid
£
Cumulat ive
£
Due
£
Cumulat ive
£
Under paid/
(over paid) 14.12.06 150,000 150,000 164,250 164,250 14,250
14.3.07 180,000 330,000 164,250 328,500 (1,500)
14.6.07 176,250 506,250 164,250 492,750 (13,500) 14.9.07 138,750 645,000 164,250 657,000 12,000
1.3.08 12,000 657,000 ______
657,000 657,000
The Revenue will issue an int er est st at ement once t he r et ur n has been submit t ed and t he f inal liabilit y has been calculat ed.
I nt er est on Lat e Paid Tax 153
I nt er est Summar y:
14.12.06 t o 13.3.07 I nt er est charged on £ 14,250 under paid 14.3.07 t o 13.6.07 I nt er est credit on £ 1,500 over paid 14.6.07 t o 13.9.07 I nt er est credit on £ 13,500 over paid 14.9.07 t o 29.2.08 I nt er est charged on £ 12,000 under paid
Assuming a r at e of int er est on under paid t ax of 7% and a r at e of int er est on over paid t ax of 5% t he int er est posit ion can be calculat ed as f ollows:
£
£ 14,250 x 7% x 90
365 = 245.96
£ (1,500) x 5% x 92
365 (18.90)
£ (13,500) x 5% x 92
365 (170.14)
£ 12,000 x 7% x 169
366 387.87
I nt er est due t o t he Revenue £444.79
The Revenue will r aise an interest demand which must be settled within 30 days. I f it is set t led lat e t her e will be int er est char ged on t he int er est .
The Revenue have conf ir med t hat t hey will accept payment s of cor por at ion t ax at any t ime so if t he company calculat es and pays it s cor por at ion t ax ear lier t his will st op t he int er est r unning.
Any int er est r eceived will be t axed under Schedule DI I I . Any int er est paid by t he company will be t r eat ed as int er est paid on a non-t r ading loan and can be deduct ed f r om DI I I income.
s.100 FA 1996
C7.2 Effect of carry backs
W her e losses ar e car r ied back under s.393A(1) and r esult in a r epayment of t ax, t hen f or calculat ing t he int er est on t his r epayment it is treated as tax repaid for the accounting period of the loss unless the repayment arises in respect of an accounting period that falls wholly within the twelve months prior t o t he one in which t he loss ar ose.
I f t he car r y back r educes an amount of unpaid t ax, interest will cease to run from the due date of the period in which the loss was made f or t he amount of t ax unpaid t hat t he car r y back negat es. Apar t f r om t his it is ignor ed in calculat ing t he int er est on unpaid t ax ex cept f or an account ing per iod f alling wholly wit hin t he 12 mont hs bef or e t he one in which t he loss ar ose.
For car r y back of non-trade deficits on loan r elat ionships t he calculat ion of int er est on under paid or over paid cor por at ion t ax is not af f ect ed except t hat in t he case of under payment s the amount met by the carry back is treated as paid on the due date for the accounting period in which the deficit arose.
Ot her wise it is t r eat ed as a r epayment of cor por at ion t ax f or t he account ing per iod in which t he def icit ar ose.
I nt er est on Lat e Paid Tax 155