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ACCA Strategic Professional · Advanced Taxation (UK) · Tax administration and the UK tax system

Amara Ltd paid corporation tax of £40,000 nine months after the due date. Using the assumed rates in the ATX-UK tax tables, which rate applies to the interest charged by HMRC on the late payment?

Interest on tax paid late is charged at the rate on underpaid tax, which is 8.50% in the assumed ATX-UK tables. The official rate of 3.75% is for employment-related loans, and 3.50% is only paid by HMRC on overpaid tax.

  1. A3.75% per year, the official rate
  2. B8.50% per year, the rate on underpaid taxCorrect
  3. C3.50% per year, the rate on overpaid tax
  4. D6% plus a daily penalty at an annual rate of 10%

Explanation

Tax paid late is underpaid tax at the due date, so interest runs at the underpaid rate of 8.50%. The official rate of 3.75% is used for beneficial loan benefits, not late payment interest. The 3.50% rate applies only where HMRC repays tax overpaid. The 6% plus daily figure relates to VAT late payment penalties, not interest.

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