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ACCA Applied Skills · Taxation (UK) · The systems for self-assessment and the making of returns

Priya failed to pay £6,000 of income tax due on 31 January. She paid it in full 146 days later. Using the assumed rate of interest on underpaid tax, what is the interest charge, to the nearest £? (Assume a 365-day year.)

The interest is £204. Underpaid tax is charged at 8.5% a year, so £6,000 × 8.5% × 146/365 equals £204. The official rate of 3.75% and the overpayment rate of 3.5% are not used for underpaid tax.

  1. A£204Correct
  2. B£127
  3. C£204 at the official rate of 3.75%, giving £90
  4. D£3,000

Explanation

Interest on underpaid tax is 8.5% per annum. £6,000 × 8.5% × 146/365 = £510 × 0.4 = £204. Using 3.5% (the overpaid rate) or the official rate would understate the charge.

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