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  1. #1

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    Default Calculating Interest

    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

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    Default Simple interest

    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.

  3. #3

    Contractor Among Contractors


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    Default

    Quote Originally Posted by LetsGoSailing View Post
    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)

    Open with internet Explorer

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    Default

    Quote Originally Posted by Tomandjerry View Post
    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.
    Quote Originally Posted by webberg View Post

    Thanks both.
    That PDF is very useful.

  5. #5

    Godlike


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    Default

    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

  6. #6

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    Default

    Quote Originally Posted by DonkeyRhubarb View Post
    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?

  7. #7

    Still gathering requirements...


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    Default

    Quote Originally Posted by Wayt View Post
    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)

  8. #8

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    Default

    Quote Originally Posted by Wayt View Post
    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.

  9. #9

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    Default

    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?
    Last edited by Wayt; 10th June 2017 at 21:24.

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