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Calculating Interest

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    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

    #2
    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.

    Comment


      #3
      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
      Best Forum Adviser & Forum Personality of the Year 2018.

      (No, me neither).

      Comment


        #4
        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.
        Originally posted by webberg View Post

        Thanks both.
        That PDF is very useful.

        Comment


          #5
          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

          Comment


            #6
            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?

            Comment


              #7
              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)

              Comment


                #8
                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.
                Best Forum Adviser & Forum Personality of the Year 2018.

                (No, me neither).

                Comment


                  #9
                  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; 10 June 2017, 21:24.

                  Comment

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