HMRC Interest - Can we have it cancelled

HMRC Interest - Can we have it cancelled

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I’ve been asked to advise a client on an interest charge that HMRC are levying on them.

The situation is that the company accounted incorrectly for a payment made to an EBT and claimed it in their 2006 return when it had already been claimed in their 2005 return. Sounds a stupid mistake but in fact there were several payments made months after the charge was accounted for and it was a genuine mistake. (One could question why the auditor missed it.)

When it was spotted the company informed HMRC and paid the tax due. No penalties were imposed. However, when the additional tax was added to the tax already paid the total took the company over the limit for making quarterly payments. So now HMRC are claiming interest on the unpaid payments on account, which of course the company were not aware of.

It seems a bit harsh – does anyone have any thoughts on what (if anything) could be argued to have the interest charge removed?

James Green

Replies (8)

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By jamesashburton
13th Aug 2008 13:02

Client status
Thanks Martin,

The company concerned is a UK subsidiary of an offshore group. I was retained a few months ago to advise on the offshore tax structures for this group and for related companies with common shareholders. It was only last week that anyone thought to ask me about the UK company. Until then if I'd thought about it at all I'd have assumed that quarterly payments were being made. It just seems that the auditors missed the plot.

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By martinfoley07
12th Aug 2008 17:39

"down to.....
.........the auditors".

Well, as you correctly say, it's firstly down to the directors and company. You do not give any details as to size and type of company, but if they hit quarterly tax payment thresholds and have audit requirement, they must be of a certain size.

Secondly, depending on the size and nature of the "genuine mistake", it may also be down to the auditors as to why the error was not picked up if it was material or if it was systematic or if they had been tasked specifically at looking at the area concerned etc.

Thirdly, it's your client, James. What is your role exactly !!

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By jamesashburton
12th Aug 2008 17:08

Thanks - its down to the auditor now
Thanks for your comments which were more or less what I expected. I've advised the company directors to ask for an explanation from the auditors as to how they missed this. Its fair enough that the directors are responsible for approving the accounts and signing the return but I think they should expect their accountants to offer better advice.

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By neileg
08th Aug 2008 14:56

I can see why you feel aggrieved
But as the cliche has it "ignorance of the law is no defence".

You make it clear that the effect of the error was not only to understate the liability but also to fail to trigger the payments on account. Had the error not been made and the correct tax, including payments on account been paid, then the company would have incurred interest or lost interest as I suggested. The interest on the underpayment may not equate exactly to the interest saved, but I still see a strong linkage.

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By geoffwolf
08th Aug 2008 12:16

timing
maybe if you can provide dates of accounts, date of vol disclosure and time lag between date of disclosure and date when HMRC first requested interest on late quarterly payments it may be simpler to understand your problem.

Surely once it became apparent that the extra tax would bring quarterly payments on account into the equation these should have been paid.

The tax accountant should have been aware of the issue.

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By geoffwolf
07th Aug 2008 16:59

hard luck
as soon as the company became aware of the total CTdue for 2006 they ought to have realised that quarterly payments were required and paid any that were late. They therefore only ha\ve themselves or their advisers to blame. No excuse appears appropriate.

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By jamesashburton
07th Aug 2008 16:48

Its not the interest on the original tax that's the concern
It's not the interest on the extra tax that they are complaining about - they have already paid that - but interest on "payments on account". As things stood the company was not liable to make any payments on account, However once the company spotted the error, held their hands up, and paid the extra tax, the re-calculation and the fact that they are in a group of three companies - meant that they should have been paying tax on account. They of course didn't know that. Some months after making the payment of underpaid tax (and interest) HMRC - without notification - added on interest on the "unpaid" payments on account right back to 2007. Seems a bit harsh but I just wondered in anyone could think of an arguement to mitigate this - the amount is fairly substantial and almost as much as the original underpayment!

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By neileg
07th Aug 2008 14:51

No
If the tax had been paid on time, the company would have paid more overdraft interest or received less interest on cash deposits. So it's in a better financial position than it should be. I don't see how interest on the late payment is harsh.

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