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

Karl appealed against a HMRC assessment and postponed £12,000 of income tax which had been due on 31 January 2025. His appeal failed and he paid the £12,000 exactly 6 months after that due date. Using the interest rate on underpaid tax of 8.5% per year, what interest is payable on the postponed tax?

Interest runs on postponed tax from the original due date until it is paid, at the underpaid rate of 8.5%. So £12,000 × 8.5% × 6/12 gives £510. Using a full year, or the official rate, gives the wrong figures.

  1. A£510Correct
  2. B£1,020
  3. C£450
  4. D£255

Explanation

Interest on underpaid tax runs from the original due date to payment: £12,000 × 8.5% × 6/12 = £510. £1,020 uses a full year. £450 wrongly uses the 3.75% official rate. £255 uses only 3 months.

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