CLAUSE 90: SELF ASSESSMENT: CALCULATION OF
INTEREST ON OVERPAID TAX
INTRODUCTION
1. This clause provides for interest on repayments of overpaid tax
(repayment supplement) under self assessment to run from the date that
the tax is paid instead of, as previously provided, from the later of the
statutory due date for payment or the date the payment is made. The
change will take effect from the start of the new system for self
assessment - for the tax year 1996-97 and subsequent years. It will apply
to repayment supplement on all overpayments of income tax and capital
gains tax and payments treated as tax, such as payments on account,
penalties etc. Repayments of tax deducted at source, for example under
PAYE, will not be affected - repayment supplement on these will still
run from 31 January after the end of the tax year. These changes were
announced in an Inland Revenue press release on 12 November 1996.
2. Under the new system for self assessment the Inland Revenue will
continue to pay repayment supplement on repayments of any overpaid
income tax and capital gains tax, and also on the repayment of a penalty
or surcharge.
3. The rules for repayment supplement under Self Assessment,
introduced in the 1994 Finance Act, originally provided that repayment
supplement should run from the later of the statutory due date for
payment or the date the payment is made. That provision will not now
come into effect and is replaced by the provisions introduced by this
clause.
4. This change will simplify and streamline the calculation of interest
on repayments of overpaid income tax and capital gains tax (known as
repayment supplement) under self assessment. The change will mean
that, where these taxes are overpaid, the repayment will carry interest
back to the date on which the tax was paid, even if that was before the
statutory due date for payment of the tax in question.
BOARD OF INLAND REVENUE CLAUSE 90
DETAILS OF THE CLAUSE
Subsection (1) provides that the income tax repayment supplement
provisions in the Taxes Acts, as amended for self assessment by the
Finance Act 1994, shall be amended in accordance with subsections (2) to
(4) of the Clause.
Subsection (2) substitutes two new paragraphs for subsections (3)(a) and
(3)(b) of amended Section 824 ICTA - which specifies the relevant time
from which repayment supplement starts to run:
New subsection (3)(a) provides that, for repayments of amounts
paid on account of income tax, and repayments of income tax other
than tax deducted at source, the relevant time from which repayment
supplement is to be calculated is the date of payment.
New subsection (3)(b) provides that, for repayments of tax deducted
at source, repayment supplement will run from 31 January after the
end of the tax year.
Subsection (3) amends subsection (3)(c) of amended Section 824 ICTA and
provides that, for a repayment of a penalty or surcharge, repayment
supplement will run from the date of payment.
Subsection (4) substitutes two new subsections for subsection (4) of section 824 ICTA:
New subsection (4) specifies that, for calculating repayment
supplement, repayments of income tax will be attributed first to
payments of income tax payable under Section 59B TMA (the
'balancing payment'), next, equally to the two payments on account
under Section 59A, and finally to income tax deducted at source.
And where payment has been made by instalments, the repayment
is attributed to a later payment before being attributed to an earlier
one.
New subsection (4A) explains what 'income tax deducted at source'
means
Subsection (5) amends the repayment supplement provisions for capital
gains tax to provide that supplement runs from the date on which the tax
was paid.
Subsection (6) applies the changes from the start of self assessment - for
1996-97 and subsequent years. But the changes do not have effect until
1997-98 for partnerships whose trades, professions or businesses are set up
and commenced before 6 April 1994.
BACKGROUND
5. Under the new system for self assessment which started on 6 April
1996, certain taxpayers are required to make two payments on account
towards the tax due for any year - the first on 31 January of the tax year
in question, the second on the following 31 July. They must then make
a third and final balancing payment to meet any tax still outstanding at
the annual filing date for the self assessment return - the next 31
January. The intention is that each payment on account should be
approximately half of the income tax liability for the year after taking
into account tax deducted at source and tax credits, and will be
calculated by reference to the previous year's income tax liability. The
balancing payment will reflect the total tax liability for the year, based
on the self-assessment, and so will include any capital gains tax due.
6. Interest will be charged on any amount of tax unpaid at the relevant
due date for payment, and interest will also be payable on any penalty
or surcharge paid late. However, the Inland Revenue will pay interest
(repayment supplement) on the repayment of any overpaid tax, penalty
or surcharge, although repayment supplement will not be payable on any
amounts paid in excess of the statutory minimum that the taxpayer is
required to pay on account.
7. The original intention, introduced in the Finance Act 1994, was that
repayment supplement would run from the later of the statutory due date
for payment or the date the payment was made.
8. The new rules whereby repayment supplement will run from the date the payment is made will be a considerable simplification on the present system. It will be fairer to taxpayers as they will receive interest on repayments of overpaid tax (except amounts paid in excess of the statutory minimum that the taxpayer is required to pay) for the full time that the money is with the Revenue.
9. The change in the legislation will apply from the start of self
assessment - to payments in respect of the tax year 1996/97, for which
the first payments on account will be due on 31 January 1997.
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