Corporation tax interest rates rise from 17 May

Following the recent rises in the bank rate the Inland Revenue announced new rates of interest for underpaid and overpaid instalment payments of corporation tax, and for early payments of corporation tax not due by instalments.

These new rates apply to all such taxes relating to accounting periods ending on or after 1 July 1999. These rates will take effect from Monday 17 May 2004.

Unfortunately, however, the new rates still perpetuate the unfair differential between the interest that the Revenue charges companies who owe tax and the interest the Revenue pays to those companies to whom the Revenue owes money on overpaid taxes.

This issue was highlighted by the FSB at the All Party Parliamentary Group's conference on formulating a Manifesto for SMEs which UKTECH reported on here.

The FSB complained that "When businesses overpay taxes, the interest rate paid back is miniscule and much less than when the Inland Revenue owe the business. It should be same rate whether owed or owing".

The new rate from 17 May will be 5.25%, an increase of 0.25% over the rate of 5% that has been effective since February. The rate they pay also goes up – from 3.75% to 4% to maintain the 1.25% differential that the Revenue maintains between what it pays and what it charges.

It would be interesting to know what the Government's justification is for the margin of 1.25% between what it pays and what it charges on corporation tax?

Kevin Miller, MA FCA