ACCA Strategic Professional · Advanced Taxation (UK) · Corporation tax: the effect of a group structure
Theta Ltd is a large company under the quarterly instalment regime with an accounting period ending 31 December 2026. A group company has late payment issues and an instalment is paid late. Which statement about interest is correct using the rates given?
Late instalments bear interest at the underpaid tax rate of 8.50%, while overpaid tax earns 3.50%. The 3.75% official rate applies to employment-related loans, not tax underpayments, so it is not the correct rate.
- AInterest on underpaid tax runs at 8.50% from the due date, and overpaid tax earns 3.50%Correct
- BInterest on underpaid tax runs at 3.75%, the official rate
- CInterest on underpaid tax is 3.50% and overpaid tax is 8.50%
- DNo interest is charged on instalments paid late
Explanation
The assumed rate on underpaid tax is 8.50% and on overpaid tax 3.50%. The official rate of 3.75% relates to beneficial loans, so it is wrong here. Reversing the rates is another error.
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