We did a survey on our settlement clients who used a TTP arrangement.
Of those who settled and who had closed years;
Around 30% had calculations that included forward interest initially (which we had removed).
Around 60% has calculations in which no forward interest on closed years.
Around 10% had a situation in which forward interest was flawed in some manner but in the client's favour. We explained the consequences to the client and have agreed a settlement.
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Previously on "Settlement TTP - does forward interest only apply to open years?"
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Originally posted by Delendog View PostThe 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?
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Originally posted by stonehenge View PostCan 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?
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; 12 August 2019, 10:19.
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Originally posted by Delendog View PostTTP FI will be (40+20)*4.25%*(5/2)=6.375K
If the 20 is the interest already accrued to date, I thought they didn't charge interest on interest?
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Originally posted by stonehenge View PostExample
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
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; 12 August 2019, 09:13.
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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
Leave a comment:
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Settlement TTP - does forward 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; 12 August 2019, 08:16.Tags: None
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