VDIM5070 | Calculation of interest: The interest calculation formula

This guidance deals with interest matters in respect of prescribed accounting periods starting on or before 31 December 2022. Interest matters with effect from 01 January 2023 are dealt with under Finance Act 2009.

Please see Compliance Handbook page CH140000 onwards to find the new interest rules guidance.

The interest calculation formula is

• Number of days multiplied by the interest liable amount, then

• Multiplied again by the interest rate, then

• Divided by the number of days in the year, which then

• Equals the interest

Every time one of these components changes, for example a change in the interest rate or a leap year, a new calculation line has to be started.