Interest on tax payments

rmg1 · 29 September 2016 at 4:21PM

Hi all

First time posting on this board so please be gentle.

A couple of years ago, I went self employed and filled in a tax return.
I couldn't afford to pay the entire tax bill in one go (I know, my mistake) so contacted HMRC and set up a payment plan to pay it off in installments. All good so far.

Last year, I increased my payments to HMRC to pay it off quicker and received updated paperwork (2 letters) showing the amount outstanding and the payments I was to make.

The last payment should have been in June this year, but I paid it in May (I'd just been paid from my new job (PAYE) and decided to pay it before the direct debit was taken just to get it out of the way).

HMRC now say that interest had been incorrectly worked out and that I owe them an extra £70.

I also have a letter stating that interest was calculated on the full amount on 31/05/2016 (after my final payment to them) which is when it came to light.

I've appealed the interest charges and had that rejected even though I sent them a copy of the letter showing the updated payment schedule (from August of last year).

I'm going to take this to tribunal (which is my next step) but wondered what my chances were.

This is obviously their mistake but they still say I'm liable for this.

Any advice gratefully received.

Wayne_O_Mac · 29 September 2016 at 6:57PM

rmg1 wrote: »

This is obviously their mistake but they still say I'm liable for this.

It's all going to hinge on whether the interest was incorrectly calculated initially, or whether the mistake is in the new figures.

Interest is statutory, so even if HMRC made the mistake initially, you're still on the hook for the correct amount.

If you could post some figures (especially on how they say it was incorrectly calculated) then someone can probably give you a steer...

rmg1 · 30 September 2016 at 9:27AM

I'll dig the figures out when I get home (I'm at work now).

One more question though, because I increased my payments and therefore shortened the time taken to repay the balance, wouldn't this reduce the interest?

rmg1 · 3 October 2016 at 12:43PM

Got all the paperwork out (that I could find anyway) and got the following figures:-
Initial amount owed £2905.20
Made a payment of £100 up-front
Then made payments of £102 (plus change) until August 2015.
August 2015, made a change to Direct Debit (increased to £120).

Got two letters from HMRC confirming outstanding amount (£1208.07 including interest) and payments to be made. These were:-
£120 September 2015 until May 2016 (inclusive)
128.07 final payment to be made June 2016 (this payment was made in May 2016 as I'd just been paid from work).

Hopefully these figures help.

polymaff · 3 October 2016 at 7:33PM

I can't spot an important date - the date of the very first regular payment. So it is impossible to evaluate the first half of your data .

The other data is also compromised as you don't explain the interest mentioned in "£1208.07 including interest". Interest due up to that statement or interest due to the end of the payment schedule?

Also, what does "up-front" mean? Before the initial due date or what?

Believe me, if you go before a tribunal with this quality of data, you'll be crucified.

rmg1 · 3 October 2016 at 9:48PM

polymaff wrote: »

I can't spot an important date - the date of the very first regular payment. So it is impossible to evaluate the first half of your data .

First regular payment by direct debit was on 02/05/2014 and was for £102.49.
These were made monthly between May 2014 and August 2015 inclusive.

From September 2015 to May 2016 I was paying £120 a month.
The final payment of £128.07 was due to be made in June 2016 but I paid it early (in May 2016) as I'd just been paid from work (PAYE) and decided to pay it and get it out of the way so I could cancel the direct debit.
I paid it on using my debit card over the phone.

polymaff wrote: »

The other data is also compromised as you don't explain the interest mentioned in "£1208.07 including interest". Interest due up to that statement or interest due to the end of the payment schedule?

The letter from HMRC doesn't say. The header on the letter dated 24/08/2015 simply states "Payment plan amount: £1208.07 including interest due".
The letter dated 23/08/2016 (which contains the direct debit guarantee) just states "Total to be collected £1208.07" (no mention of interest on this letter). It then goes on about the bank details, etc.
The next (as far as I can see) relevant section states the following:-
"Your payment instalments will be collected as follows:
£120 on 04/09/2015
followed by regular payments of £120 on 04/10/2015 and monthly thereafter until 04/05/2016
and a final payment of £128.07 on 04/06/2016"

polymaff wrote: »

Also, what does "up-front" mean? Before the initial due date or what?

In this case, up-front means I made the payment of £100 on 03/04/2014 which is before the direct debit payments started.

Hopefully this is better info but feel free to say if you need anything else.

antonic · 4 October 2016 at 4:12AM

What you need to understand is that HMRC charged interest on the amount due of 3% on the amount due (source https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates#hm-revenue-and-customs-hmrc-late-payment-and-repayment-interest-rates) until you pay the debt in full.

If I read your figure correctly, the amount due was £2905.20

You paid £100 immediately , then 16 monthly payments of £102.49 (02/05/14 to 02/08/15) = £1639.84

Then 8 x £120.00 (02/09/15 to 02/05/16) = £960 and a final payment of £128.07 in May 2016.

You have therefore paid £100 + £1639.84 + £960 + £128.07 = £2827.91, which means you still owe £2905.20 - 2827.91 = £77.29

(Using your figures)

Which is round about their figure.

Dont forget as well , you will have interest to pay on this, which wont be calculated until you clear the debt in full).

Hope this helps.

dori2o · 4 October 2016 at 1:17PM

OP, Can you confirm which tax year this balance is from. This will make a difference as it depends on when interest is due from.

If this is for 2012/2013 then interest was already acruing at the time you made the time to pay agreement.

If it's for 2013/2014 and you submitted your tax return early, then the interest is not due to start to accrue until after 31/01/15

I have a feeling that the £1208.07 balancce outstanding on the letter received in September 2015 represents only the tax outstanding at the time you changed the agreement and does not include the interest due over the remaining period of the arrangement, so whoever updated the system at that time didn't recalculate the interest that would be due over the repayment period and take this into account in the amended repayment plan.

Now that the repayment plan has been completed HMRC's system will show that interest is due on that balance based on the date the payment was originally due and the date the tax was cleared.

Interest on tax liabilities is a statutory charge and so is due even if miscalculated by HMRC.

I would advise you write a letter objecting to the aditional charge on the basis that interest should have been calculated in with the payment arrangement and you maintained the arrangement until its conclusion.

rmg1 · 4 October 2016 at 1:34PM

@antonic - The figure they claim I owe is £68.98 (but the difference could be because I increased the payments therefore shortening the time-frame).

@dori2o - I've sent the details to the Tribunal service along with copies of the letter showing the £1208.07 (including interest). I did that on Sunday so I suppose I'll have to see what they come back with.

dori2o · 4 October 2016 at 1:58PM

rmg1 wrote: »

@antonic - The figure they claim I owe is £68.98 (but the difference could be because I increased the payments therefore shortening the time-frame).

@dori2o - I've sent the details to the Tribunal service along with copies of the letter showing the £1208.07 (including interest). I did that on Sunday so I suppose I'll have to see what they come back with.

You can wait if you wish, but there is nothing to stop
you trying to resolve the issue with HMRC in the meantime, just as with any tribunal case you can continue to 'negotiate' with the other party until the tribunal makes a decision.

rmg1 · 4 October 2016 at 3:41PM

I spoke to someone on Saturday and they were adamant that I needed to pay this £68.98 because my appeal to get the interest removed had been denied.
I'll try again this weekend and let you know how I get on.

Interest on tax payments

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