How do the Inland Revenue calculate interest.

[Klunk]

I've been involved with a PAYE dispute/investigation with the IR over last couple of years and all the way through this they come back with their recalculations of what I/my company owe. Every time the recalc comes through there is an amount of interest added. In my reconing this adds up to an additional 30% of the sum "owed". However i've scoured through the IR website and queried this with my accountant and don't seem to get a straight answer from either. The only answer I can come to is that it's the "ordinary "rate as specified in the Finance act 1996 section 197 + 10%. I cannot seem to be able to get a clear answer from the details of the act either. Anyone out there with a simple answer?

[themas]

If your accountant can't explain it, either he or you should query it with IR. They should be able to give you a comprehensible explanation and - if you ask them - back it up with the legal basis they use in arriving at the figure.

If you can't get any sense out of them you could always use their complaints procedure (ending up with the Independent Adjudicator if necessary).

[Klunk]

Thanks. Were already doing that. The intent of posting the question was to see if there was a simple straight forward answer. Obviously not.

[deso]

The interest rates are published on the HMRC website at: http://www.hmrc.gov.uk/rates/interest-late.htm
As you can see they go back to February 2000. I'm surprised your accountant couldn't come up with the answer re interest rates though. Depending on exactly what IR are chasing you for, it's quite possible that only part of the bill is interest bearing. Making a payment on account equal to the interest bearing amount will stop further interest accruing.

[Klunk]

Excellent! Exactly the answer I was looking for. thanksfor that. I had spoken to the accountant again since posting this and even though he said this was by no means the final figure for them to bill, the interest would be about 7.5% + 10% which tallies up with what is on the IR site.

The daft thing is I spent a couple of hours on the IR site myself and could not find a thing. All down to what you specify in the search I suppose :)

Anyway thanks for the reply deso.