Revenue Scotland Interest on Tax Repayments and Penalties Guidance

Revenue Scotland repayment interest on tax, penalties and interest

If Revenue Scotland repays tax, a penalty, or interest you previously paid, it may also have to pay repayment interest for the time it held the money. This interest usually runs from the date you paid or lodged the amount until the repayment date, and it is calculated as simple interest using the published repayment rates.

• Repayment interest can apply to repayments of tax, penalties, and interest previously paid on tax or penalties.
• The usual start date is the date the amount was paid, or the date money was lodged with Revenue Scotland for tax on a transaction.
• The interest runs until the date Revenue Scotland actually makes the repayment.
• The rate is the higher of 0.5% a year and the Bank of England rate, using the rates published for each relevant period.
• The interest is simple, not compound, so there is no interest on accrued interest.
• Calculations can be more complex where the repayment period covers rate changes or where it is unclear whether money was paid or only lodged.

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Revenue Scotland interest on repayments of tax, penalties and interest

This page explains when Revenue Scotland pays interest after it repays tax, penalties, or earlier interest that you paid. The point is practical: if you paid too much, or Revenue Scotland later agrees that an amount should be repaid, the repayment may carry interest for the time Revenue Scotland held that money.

What this rule is about

The source material deals with repayment interest under the Revenue Scotland and Tax Powers Act 2014. It is about money flowing back from Revenue Scotland to the taxpayer.

This is different from interest charged on late-paid tax. Here, the question is whether Revenue Scotland must add interest when it repays an amount that should not have been kept.

The rule covers repayments of:

• tax
• penalties
• interest that you previously paid on tax or penalties

So the rule is not limited to overpaid tax. It can also apply where a penalty is cancelled or reduced, or where interest previously charged is later repaid.

What the official source says

Revenue Scotland states that it will pay interest on any repayment it makes of tax, penalties, or interest previously paid on tax or penalties.

The interest runs from the “relevant date” to the date the repayment is made.

For this purpose, the relevant date is:

• the date the tax, penalty, or interest was paid, or
• if money was lodged with Revenue Scotland in respect of tax payable on a transaction, the date that amount was lodged

The rate is the higher of:

• 0.5% a year, and
• the Bank of England rate

The source also makes clear that the interest is simple interest, not compound interest. In other words, interest is calculated only on the amount being repaid, not on interest that has already built up.

The published table shows the repayment interest rates that applied from particular dates. For example, the rate shown from 14 May 2025 is 4.25%.

What this means in practice

If Revenue Scotland repays an amount to you, it should also consider whether repayment interest is due. The starting point is not when the mistake was discovered or when the repayment was agreed. The starting point is usually when you originally paid the amount, or when you lodged the money with Revenue Scotland.

That can matter a great deal where the repayment happens long after the original payment.

The rule also means that the applicable rate may change during the period. The source lists different rates from different dates. In practice, repayment interest may need to be calculated by reference to the rate in force over each part of the period, rather than by using a single rate for the whole time.

Because the interest is simple interest, you do not get “interest on interest”. If Revenue Scotland owes you a repayment of tax, the interest is calculated on that tax amount alone. The same approach applies if the repayment is of a penalty or of previously paid interest.

How to analyse it

A sensible way to work through the issue is:

• Identify what is being repaid: tax, a penalty, or interest previously paid.
• Identify the date the amount was originally paid. If the issue involves money lodged with Revenue Scotland for tax on a transaction, identify the lodging date instead.
• Identify the date Revenue Scotland actually makes the repayment.
• Check the repayment interest rates that applied during that period.
• Apply simple interest only, not compound interest.

Questions worth asking include:

• Was the amount definitely paid to Revenue Scotland, or merely assessed and not yet paid?
• Is the repayment of the principal amount, or is it the repayment of interest that had previously been charged?
• Was any money formally lodged with Revenue Scotland before the final tax position was settled?
• Did the period span one or more rate changes?

The legal basis cited by the source is sections 219 to 220 of the Revenue Scotland and Tax Powers Act 2014, together with the 2015 Regulations on interest and rates.

Example

Illustration: a taxpayer pays a tax amount to Revenue Scotland. Later, Revenue Scotland accepts that part of that payment should be repaid. Repayment interest would generally run from the date that tax was paid until the date Revenue Scotland makes the repayment. If the period crosses dates when the published repayment rate changed, the calculation would need to reflect those changes. The interest would be simple interest on the amount repaid, not compound interest.

Why this can be difficult in practice

The core rule is straightforward, but the calculation can still be technical.

One difficulty is identifying the correct starting date. The source uses the “relevant date” and gives two possibilities: the payment date, or the date money was lodged with Revenue Scotland. In some cases, it may matter whether a sum was truly paid as tax or only lodged pending the final position.

Another difficulty is rate changes over time. The published rates have changed repeatedly. Where Revenue Scotland held the money across several rate periods, the repayment interest may need to be apportioned across those periods.

There can also be practical confusion between repayment interest and interest charged on unpaid tax. They are separate rules with different purposes. A person may have paid interest to Revenue Scotland on an earlier basis, and if that interest is later repaid, this page indicates that repayment interest can itself apply to that repaid interest amount.

The source does not set out a worked formula or detailed computational method. It states the legal basis, the nature of the interest, and the relevant rates. The detailed arithmetic must therefore follow those rules.

Key takeaways

• Revenue Scotland says it will pay interest on repayments of tax, penalties, and previously paid interest on tax or penalties.
• The interest usually runs from the date the amount was paid, or from the date money was lodged with Revenue Scotland, until the repayment date.
• Repayment interest is simple interest, and the applicable rate is the higher of 0.5% and the Bank of England rate, using the published rates in force over the relevant period.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Revenue Scotland Interest on Tax Repayments and Penalties Guidance

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