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Consultation on charging interest

HMRC have recently published a consultation document on interest, titled “Interest – Working Towards a Harmonised Regime”

The document explains the rationale for charging and paying interest, sets out the principles underpinning the regime, looks at the anomalies of the current system, and outlines and invites comments on the new proposals.

The document is quite long. Having read through it, there are some significant points:

  •  “the purpose of interest is to reinforce the fact that particular taxes are due for payment on particular dates, and to bring a degree of fairness into the system where those payment dates are not met by some taxpayers but are by others.”

This should be contrasted to the statement in the next paragraph:

  • “interest is not intended to be a penalty for late payment”

and very shortly after

  • “interest is not designed to influence behaviour in the way that penalties are, and there is no consideration of the reason for late or overpayment. It is simply recompense for not having use of the money, measured by reference to the amount and time. It is for this reason that an appeal right against an interest charge is not appropriate.”

The document supports the view that if HMRC has financially disadvantaged someone by charging interest because of HMRC’s own mistake or unreasonable delay, it should cancel the charge.
One other key point is the discussion on whether or not interest charged and paid should be on a compound rather than a simple basis – this could be very significant.

Again, if you have a comment, this is your chance to make it.

 

 

Date: 4th August, 2008
Author: Cathy Corns

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