SolvedCOM80020 | Interest: how interest is calculated: late payment interest calculation by COTAX
From HM Revenue & Customs · COTAX Manual
COTAX automatically reviews the interest position when a payment or charge is recorded.
COTAX does not automatically calculate and charge late payment interest where:
the ‘clerical interest’ indicator (CII) is set to ‘Y’ or
there is a date struck off on the record and that date has passed or
the number of interest accruals is greater than 200
Where the CII is not set
COTAX automatically charges late payment interest under Section 87A Taxes Management Act (TMA) 1970 on any tax paid after the normal due date (see Glossary for more information) for the Accounting Period (AP) once the tax liability has been paid in full and a tax charge is present.
In CT Pay and File, late payment interest was calculated once the due date had passed regardless of whether a tax charge was present or not.
When COTAX calculates late payment interest it applies the following rules:
a non-trading deficit carried-back to an earlier AP, interest runs to the normal due date of the AP from which it was carried back
a trading loss carried-back, interest runs to either the normal due date of the receiving AP, when the trade loss is carried back 12 months or less or to the normal due date of the AP from which it was carried back, in all other cases
ACT carried-back to a CT Pay and File AP, interest runs to the normal due date of the AP from which it was carried back
Where COTAX is unable to calculate interest correctly on a carry-back see COM50080 for more information, the caseworker sets the ‘CII’ signal to prevent it creating an incorrect interest charge. For more information see COM50000 onwards.
Interest is not charged on penalties or interest itself or tax which is stood-over or suspended.
Where the CII is set
COTAX does not do any of the following.
automatically calculate and charge Section 87A TMA 1970 interest
make automatic repayments and reallocations or issue payment applications
display the total interest accrued to date in function VPPD (View Payment and Posting Details), or on assessment output or penalty determinations
See: