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ACCA Applied Skills · Taxation (UK) · The procedures relating to compliance checks, appeals and disputes

Following a failed appeal, Chloe must pay £4,000 of income tax that had been postponed. Interest on underpaid tax runs for 60 days after the original due date on the £4,000 in respect of the period concerned. Using the rate of interest on underpaid tax given in the tax tables and ignoring leap years, what is the interest, to the nearest £?

Interest on underpaid tax is £4,000 multiplied by 8.5% and by 60/365, which equals about £56. The 8.5% underpaid rate from the tax tables applies, not the overpaid or official rate, and the charge is apportioned for the 60 days only.

  1. A£56Correct
  2. B£153
  3. C£84
  4. D£130

Explanation

Interest = £4,000 × 8.5% × 60/365 = £340 × 0.16438 = £55.89, which rounds to £56. Option B uses the overpaid rate of 3.5% over a full year? No: 4,000 × 3.5% = £140 is not £153, so B is simply incorrect. Option C uses the 3.75% official rate for 60 days and a wrong base, and D uses 8.5% for 92 days.

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