BN66 - charges and interest

[DonkeyRhubarb]

CTD - further analysis

Have I got this right?

Scenario A
If you take out a CTD you only need to deposit an amount equal to your tax liability and not any interest that may have already accrued.

For example, take someone with a tax liability of £100k from a few years ago who has already accrued £30k in interest charges.

HMRC only levy interest on the £100k, so to stop the clock you need to deposit £100k in the CTD. The other £30k you may as well keep in a savings account and earn interest on it.

If the appeal is lost in 5 years time, then you will still owe £100k+£30K. Any interest you have earned on the £30k in the mean time is yours to keep.

Scenario B
Let's say you could earn 4% after tax on your savings. Instead of getting a CTD you put the whole lot in a savings account.

After 5 years, the £130k would have grown to £158k.
After 5 years, the liability would have grown to £167k.*

In other words, if we lose then you are £9k worse off. But if we win then you are £28k better off. Some people may decide that these are reasonable odds and it's worth risking £9k for the chance of "winning" £28k. Do your own sums.

* £30k + £100k + £100k*7.5%*5

[BrilloPad]

So do you earn no interest atall on a CTD? I thought you earned some?

[DonkeyRhubarb]

So do you earn no interest atall on a CTD? I thought you earned some?

Does anyone know what the tax rate and cash rate columns mean in this table? I can't find any explanation on their web site.

http://www.hmrc.gov.uk/howtopay/ctd-interest-rates.pdf

I'm guessing that it's 1% under £100k and 2% over £100k but could be wrong. In which case it's not nothing but still peanuts.

[BrilloPad]

Does anyone know what the tax rate and cash rate columns mean in this table? I can't find any explanation on their web site.

http://www.hmrc.gov.uk/howtopay/ctd-interest-rates.pdf

I'm guessing that it's 1% under £100k and 2% over £100k but could be wrong. In which case it's not nothing but still peanuts.

Looks to me like 1% if you just withdraw it - but 2% if you put it towards a tax bill? That assumes you put in less than 100k or longer than a year.

[DonkeyRhubarb]

"cash rate" vs "tax rate"

Ok, this is how I understand it. Please feel free to correct.

The "cash rate" is what you get if you withdraw the money ie. if we win.

The "tax rate" is what you would get if you took out a CTD before the tax was due. This doesn't apply to us so you can ignore this.

Here is what happens depending on the outcome of our appeal.

Win
We get the CTD back + the "cash rate" of interest (1 or 2%). The interest is taxable in the year the CTD is withdrawn.

Lose
The CTD covers the tax liability. We get nothing back.

http://www.hmrc.gov.uk/howtopay/cert_tax_deposit.htm

[BrilloPad]

Ok, this is how I understand it. Please feel free to correct.

The "cash rate" is what you get if you withdraw the money ie. if we win.

The "tax rate" is what you would get if you took out a CTD before the tax was due. This doesn't apply to us so you can ignore this.

Here is what happens depending on the outcome of our appeal.

Win
We get the CTD back + the "cash rate" of interest (1 or 2%). The interest is taxable in the year the CTD is withdrawn.

Lose
The CTD covers the tax liability. We get nothing back.

http://www.hmrc.gov.uk/howtopay/cert_tax_deposit.htm

"On the day you purchase your Certificate we will send you the Certificate together with Form 811 CTD, which gives details of the current interest rates and how they are applied."

Anyone fancy applying for that form? Who was it said they were bored?