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Have HMRC changed the interest and penalty policy?

2019/20 tax paid using 2020/21 overpayment. How are interest and penalties calculated?

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My client could not pay their 2019/20 personal tax when due on 31 January 2021.

He knew that he would be due a repayment for 2020/21, so that return was completed quickly and submitted on 4th May 2021.

The HMRC system now shoes the correct tax position - but interest is being charged from 1 February 2021 to 31 January 2022 (which is shown as the effective date of payment). The penalties are also based on payment being made on 31 January 2022, so there is  a 30 day late payment (accepted) but also a 6 months late penalty has been charged.

I thought the submission of the tax return generating the repayment would count as the payment date, as being equivalent to taking the repayment and then immediately paying it back.

Can anyone confirm if I am just wrong, if this is a change of HMRC policy, or if the HMRC system is wrong?

I have called the agent helpline who not only couldn't help, they also wouldn't refer it stating that a written appeal is required.

I did point out that if I was correct and the system is wrong they would have 7 to 9 months of corrections to deal with by the time my appeal is processed under current turnaround expectations!

The amounts are not material but I would like to know the correct position.

Thanks in advance for any help.

Replies (10)

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By Paul Crowley
09th Sep 2021 14:01

This sounds peculiar
If it is right then HMRC should not make any repayments until Jan following tax year
Also demonstrates the hopeless lack of knowledge on HMRC agent line

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By rmillaree
09th Sep 2021 14:41

That makes no sense so i am presuming you are right and hmrc are all to pock- you could have had the refund issued and then paid down liability from refund and problem would go away . Hopefully its simply IT glitch that they could not correctly sort when they made the changes due to covid. I would expeect written request asking them formally to carry booked available credit back to set against prior year "now" as you are entitled to do will be sorted within 6-12 months. Perhaps if you are lucky phone referal will do the same i would insist they do phone referal even if they "think" it wont work - hopefully someone in the back end knows more than the front end.

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By gillybean04
09th Sep 2021 14:41

S102/schedule 54 finance act 2009.

Particularly part 1 of schedule 54 5(1) and (2).

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By Wanderer
09th Sep 2021 14:59

Been discussed on here before.
The conclusion was that HMRC were right & in this case 31 January 2022 is correct as the effective date of payment.

BUT
have a look at the concession in the last section of SAM110220.

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Replying to Wanderer:
By ireallyshouldknowthisbut
09th Sep 2021 15:03

Spot on, the programming is right, but by concession it can be adjusted.

Its "operator lottery" of course if you can find anyone bright enough to do it.

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Replying to Wanderer:
RLI
By lionofludesch
09th Sep 2021 15:39

Thanks for this, Wanderer. I thought there was a concession but couldn't find it.

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By janewanless
09th Sep 2021 15:01

The "Effective Date of Payment" should be changed to the date when the 2021 return was filed - per SAM110220
"Set-off within SA to an earlier tax year
Where a credit is set-off automatically against an earlier SA liability the EDP attached to the set-off may require amending.
The EDP attaching to a set-off will normally be the date the overpayment is established. (The established date is the date the relevant information became available in order to make the set off.)
However, where the overpayment arises from a captured return, the EDP of the balancing charge credit (BCC), will automatically be allocated as the filing date of the return, that is 31 January following the end of the tax year.
On this basis when a BCC is set off against an earlier SA liability, it generates an interest charge and surcharge calculated to an EDP of the filing date of the return. This is irrespective of whether the return on which the BCC is shown was received prior to the filing date or not.
In these cases, as a concession the EDP of the BCC should be amended to the date the return was received (logged) if this is earlier than the filing date. This applies to all BCC’s irrespective of the income source from which the overpayment originates.
Note: RPS does not arise unless the set off is made after the 31 January following the end of the year in which the credit for set off originates.
To amend the EDP you have to transfer the credit to OAS and then transfer it back amending the EDP in the process."
Send an objection against the interest charge.

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By mommaB
09th Sep 2021 15:07

Thanks All.

I shall send in that appeal and have more confidence in my understanding (and insist of being transferred in the future).

... annoying that we have to deal with such anomalies in the system though.

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Replying to mommaB:
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By rmillaree
09th Sep 2021 15:31

Yes - presumably the issue here is that its known that the inviduals have a right to claim refund if they so choose and doing that would enable them to then pay the refund back in creating the earlier date - albeit at hassle to everyone situation. Thankfully for once the SA manual comes to the rescue and generally its much easier to convince hmrc of what tey ned to do when its neatly laid out in good old Sam. Perhaps if you ring agent dedicated line back and say SAM says this please do as SAM says that may avoid the 9 month wait for the written reponse.

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Replying to mommaB:
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By More unearned luck
09th Sep 2021 17:23

Taxpayers can't appeal against interest charges; they can only object. You might as well use the right terminology in your letter - more professional sounding.

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