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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: the comprehensive computation of taxable income and the income tax liability

Chen had a balancing payment of £6,000 for 2025/26 due on 31 January 2027. He paid it exactly one year late, on 31 January 2028 (365 days). Using the rate of interest on underpaid tax, what is the interest charge?

The interest is £510. Tax paid late bears interest at the 8.50% underpaid-tax rate. Over one full year on £6,000 this is £510. Using the 3.50% overpaid rate or the 3.75% official rate would be wrong because those rates do not apply to late-paid tax.

  1. A£510Correct
  2. B£210
  3. C£225
  4. D£525

Explanation

Late payment interest runs at 8.50% on underpaid tax. For a full year this is £6,000 × 8.50% = £510. £210 uses the overpaid-tax rate of 3.50%, and £225 uses the official rate of 3.75%.

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