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

Omar's appeal against an HMRC amendment is rejected. Postponed income tax of £6,000 became payable. Assuming interest runs for exactly 6 months in a case where the interest on underpaid tax is the relevant rate, what is the interest due, using the rates in the tax tables?

Interest is £255. Underpaid tax carries interest at 8.5% a year, so £6,000 × 8.5% × 6/12 gives £255. Using the overpaid rate or the official rate would understate the charge, and ignoring the six months would double it.

  1. A£105
  2. B£255Correct
  3. C£225
  4. D£510

Explanation

Underpaid tax interest is 8.5% per year. £6,000 × 8.5% × 6/12 = £255. The £105 uses the 3.5% overpaid rate (6,000 × 3.5% × 6/12). The £225 uses the 3.75% official rate. The £510 forgets to time-apportion for 6 months.

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