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ACCA Strategic Professional · Advanced Taxation (UK) · Alternative ways of achieving personal or business outcomes and their tax consequences

Mara owes £40,000 of additional income tax. It was due on 31 January and she pays it exactly 6 months later. Using the assumed rates in the ATX-UK tax tables, what interest is charged for the period (to the nearest £)?

Interest is £1,700. Underpaid tax carries interest at 8.50% per year, so £40,000 x 8.5% x 6/12 equals £1,700. The overpaid tax rate of 3.50% and the official rate of 3.75% are not relevant to a late tax payment.

  1. A£700
  2. B£1,500
  3. C£1,700Correct
  4. D£3,400

Explanation

Interest on underpaid tax is 8.50% per year. £40,000 x 8.5% x 6/12 = £1,700. The 3.75% official rate (giving £750) and the 3.50% overpaid rate (giving £700) do not apply to underpaid tax, and a full year would give £3,400.

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