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ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the scope of corporation tax, including close companies and investment companies

Gamma Ltd paid £40,000 of corporation tax nine months late. HMRC charges interest on the underpaid tax using the rate in the ATX-UK tax tables. What is the interest charge, assuming a flat annual rate applied to the period of lateness?

The interest is £2,550. Underpaid tax carries interest at 8.50%, so £40,000 for a full year is £3,400. Nine months is three quarters of a year, giving £2,550. The overpaid and official rates are not relevant to late-paid corporation tax.

  1. A£2,550Correct
  2. B£3,400
  3. C£1,050
  4. D£1,125

Explanation

The rate on underpaid tax is 8.50%. £40,000 x 8.50% = £3,400 for a full year, and 9/12 of that is £2,550. £3,400 ignores the 9-month period. £1,050 uses the 3.50% overpaid rate: 40,000 x 3.5% x 9/12 = £1,050. £1,125 uses the 3.75% official rate: 40,000 x 3.75% x 9/12 = £1,125.

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