HM REVENUE & CUSTOMS INTEREST RATES

5 Sep 2005 04:45 PM

New rates of interest on direct and indirect taxes and national insurance contributions paid late and overpaid are announced today. These new rates of interest, which take effect from 6 September 2005, are set out below. The new rates are as a result of recent movement in market rates.

Regulations are being laid today to correct an omission in the legislation charging interest on stamp duty land tax (SDLT) paid late, and paid on repayments of SDLT. The omission means that interest has been incorrectly charged and paid since 1 December 2003. Some other existing rates of interest are also incorrect due to administrative errors by HMRC. The arrangements for handling the consequences of these errors are set out below.

NEW INTEREST RATES

Income tax, national insurance contributions, capital gains tax, stamp duties etc.
The rate of interest charged on income tax, national insurance contributions, capital gains tax, stamp duty and stamp duty reserve tax paid late, tax credits overpayments in cases of fraud and neglect and on penalties charged, and on tax charged by an assessment for the purpose of making good to the Crown a loss of tax wholly or partly attributable to failure or error by the taxpayer changes from 7.5 per cent to 6.5 per cent.

The rate of interest on overpaid income tax, national insurance contributions, capital gains tax, stamp duty and stamp duty reserve tax (repayment supplement) changes from 3 per cent to 2.25 per cent.

Petroleum revenue tax, development land tax, advance corporation tax etc.
The rate of interest for development land tax, petroleum revenue tax (including supplementary petroleum duty and advance petroleum revenue tax), and on advance corporation tax and income tax on company payments which became due on or before 13 October 1999 paid late or overpaid changes from 5.75 per cent to 5 per cent.

Income tax on company payments that became due on or after 14 October 1999
The rate of interest on late payment of income tax on company payments which became due on or after 14 October 1999 changes from 7.5 per cent to 6.5 per cent.

Inheritance tax etc.
The rate of interest for late payments or repayments of inheritance tax, capital transfer tax and estate duty changes from 4 per cent to 3 per cent.

Corporation tax
The rate of interest charged on unpaid corporation tax for accounting periods ending on or after 1 October 1993 [under CT (pay and file)] changes from 6 per cent to 5.25 per cent.

The rate of interest paid on overpaid corporation tax for accounting periods ending on or after 1 October 1993 [under CT (pay and file)] changes from 2.75 per cent to 2 per cent.

The rate of interest for either late payments or repayment of corporation tax for accounting periods ended on or before 30 September 1993 [pre-CT (pay and file)], changes from 5.75 per cent to 5 per cent.

The rate of interest on unpaid corporation tax for accounting periods ending on or after 1 July 1999 (other than underpaid CT instalments) changes from 7.5 per cent to 6.5 per cent.

The rate of interest on overpaid corporation tax for accounting periods ending after 1 July 1999, in respect of periods after the normal due date, changes from 4 per cent to 3 per cent.

Customs duty, environmental levies and tax, excise duties, insurance premium tax and VAT.
The rate of default interest charged on under-declared VAT, air passenger duty, insurance premium tax, landfill tax, climate change levy, aggregates levy and customs and excise duties changes from 7.5 per cent to 6.5 per cent.

The rate of statutory interest paid in cases of official error changes from 4 per cent to 3 per cent.

REVISED INTEREST RATES

Income tax, national insurance contributions, capital gains tax, stamp duties etc.
The rates of interest on overpaid income tax, capital gains tax, national insurance contributions, stamp duty and stamp duty reserve tax which apply from 6 May 2001 have been corrected. The new rates, which are all lower than before, are:

Period New rate (%)
6 May 2001 - 5 November 2001 3.0
6 November 01 - 5 August 2003 2.25
6 August 2003 - 5 December 2003 1.5
6 December 2003 - 5 September 2004 2.25
6 September 2004 - 5 September 2005 3.0

Corporation tax
The rate of interest charged on unpaid corporation tax for accounting periods ending on or after 1 October 1993 [under CT (pay and file)] which applies from 6 December 2003 to 5 September 2004 has been corrected. The new rate is 5.25 per cent, which is higher than that previously used.

The rate of statutory interest paid in cases of official error for the same period has also been corrected. The new rate is 2 per cent, which is lower than that previously used.

STAMP DUTY LAND TAX
A review of the legislation concerning the charging and collection of interest identified that the statutory provisions for charging interest on stamp duty land tax (SDLT) were incomplete and interest has been collected and paid in error since 1 December 2003.

No interest has been charged since the omission was discovered and no further steps are being taken to collect interest charged but not paid. We can identify all those purchasers or lessees affected and we will be taking the following action:

* We will contact both purchasers/lessees affected, and their agents, and advise them what has happened and how we intend to put this right.
* Information on what we are doing, and what we recommend purchasers/lessees should do, will be published on our website within the next few days.

All affected purchasers/lessees should receive their repayment (on which we will pay interest) by 31 January 2006 at the latest. In the exceptional circumstance that they have not, details of what they should do will be available on our website at
http://www.hmrc.gov.uk/so/index.htm.

No attempt will be made to recover interest paid on repayments of SDLT.

Regulations - the Taxes (Interest Rate) (Amendment) Regulations 2005 (SI 2005/2462) - have been laid today to enable interest on SDLT to be charged and paid in future. They will come into force on 26 September 2005 and interest will be charged from that date. The rate of interest charged on SDLT paid late, on penalties charged, and on SDLT charged by an assessment for the purpose of making good to the Crown a loss of tax wholly or partly attributable to failure or error by the taxpayer will be 6.5 per cent. The rate of interest on overpaid SDLT will be 2.25 per cent.

DIRECT TAXES
The interest rates applied on overpaid income tax, capital gains tax, national insurance contributions, stamp duty and stamp duty reserve tax have, until today's corrections, been too high. No attempt will be made to recover any amounts overpaid. However, if exceptionally a repayment is reviewed, the correct amount of interest will be calculated.

The rate of interest charged on unpaid corporation tax for accounting periods ending on or after 1 October 1993 [under CT (pay and file)] which applies from 6 December 2003 to 5 September 2004 was, until today's correction, set too low. No attempt will be made to recover any further interest that might be due where interest was charged at the old rate. However, if exceptionally the liability is reviewed, the correct amount of interest will be calculated.

INDIRECT TAXES
The rate of default interest charged on under-declared VAT, air passenger duty, insurance premium tax, landfill tax, climate change levy, aggregates levy and customs and excise duties was too high for the period 6 August 2003 to 5 September 2003. The interest rate for this month was too high by one percentage point. The arrangements for refunding any overpayment to businesses affected by this error will be set out in detail in a Business Brief to be issued later this week.

The rate of statutory interest paid in cases of official error for the same period was also too high. No attempt will be made to recover the amount overpaid in these cases.

Notes for editors
1. Section 178 of the Finance Act 1989, provides that the prescribed rate, and day from which it takes effect, for the purpose of charging interest on direct taxes shall be set in accordance with the Taxes (Interest Rate) Regulations 1989 (S.I. 1989/1297, as amended). These Regulations lay down the procedures and formulae for calculating and amending HM Revenue & Customs interest rates that apply to direct taxes.

2. Section 197 of the Finance Act 1996, provides that the prescribed rate, and day from which it takes effect, for the purpose of charging interest on indirect taxes shall be set in accordance with the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 (S.I. 1998/1461, as amended). These Regulations lay down the procedures and formulae for calculating and amending HM Revenue & Customs interest rates that apply to indirect taxes.

3. The revised interest rates are based on the average base lending rate of 4.5 per cent, calculated in accordance with the relevant Regulations.

If using specific facts contained in this release please check the information is still current.

Issued by HM Revenue & Customs Media Relations Team

Website: www.hmrc.gov.uk