Read the original guidance here:
HMRC SDLT: SDLTM85910 – Compliance: Interest

Understanding Interest on Tax Payments

Interest on unpaid tax starts from the date the tax should have been paid. For more detailed information, refer to SDLTM85930 – Tax Payment Deadline.

What is Interest?

Interest is financial compensation paid to the Crown for the delay in tax payment. It aims to replace the tax revenue lost while the payment is overdue. It is important to note that this interest is not intended to punish the buyer but rather to ensure that the government receives the funds it is owed.

Payment of Interest

When paying interest, there are certain details to consider:

• No Tax Deductions: Interest must be paid in full and cannot be reduced by any taxes.
• Not Deductible: You cannot count interest as a business cost when calculating your income, profits, or gains for tax purposes.

Interest Rates

The interest rate applicable to tax payments is set by legal regulations. This rate is determined under the Finance Act of 1989, specifically section 178. The current rate can change, so it’s essential to stay updated.

Bankruptcy and Liquidation Consequences

When a buyer files for bankruptcy or a company goes into liquidation, certain rules apply to outstanding interest on unpaid tax:

• Interest Stops Accruing: Interest charges will stop when the buyer becomes bankrupt or when the company enters liquidation.
• Handling Surpluses: If there are any remaining funds during bankruptcy or liquidation, the interest owed during that time will be paid according to the relevant bankruptcy laws or Companies Acts.

Key Takeaways

Understanding how interest on unpaid tax works is crucial for managing your finances effectively:

• Timely Payments: To avoid interest accrual, make tax payments on time.
• Financial Planning: Factor in interest payments when budgeting for taxes.
• Seek Guidance: For more information about your specific situation, consulting a tax advisor may be beneficial.