ACCA Strategic Professional · Advanced Taxation (UK) · Mitigation of tax by numerical analysis and reasoned argument
Amara's self-assessment liability of £20,000 was paid 6 months late. Using the assumed rate of interest on underpaid tax in the ATX-UK tax tables, what is the interest charge, assuming simple interest for the period?
The interest is £850. Underpaid tax carries interest at 8.50% per year, so £20,000 x 8.5% x 6/12 gives £850. Using the overpaid-tax rate or a full year would give wrong figures.
- A£350
- B£700
- C£850Correct
- D£1,700
Explanation
Interest on underpaid tax is 8.50% per annum. £20,000 x 8.5% x 6/12 = £850. £700 uses the 3.5% overpaid rate wrongly, and £1,700 is a full year's interest.
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