The Taxes and Duties (Interest Rate) (Amendment) Regulations 2009

EXPLANATORY NOTE

(This note is not part of the Regulations)

The Taxes (Interest Rate) Regulations 1989 specify rates of interest applicable for the purposes of the enactments specified in section 178(2) of the Finance Act 1989. The Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 specify rates of interest applicable for the purposes of the enactments specified in section 197(2) of the Finance Act 1996.

These Regulations amend the definitions of “operative date” and “reference date” in regulation 2(1) of the Taxes (Interest Rate) Regulations 1989 and the definitions of “operative day” and “reference day” in regulation 2(1) of the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998. These amendments do not change the time taken to change interest rates in relation to unpaid or overpaid tax but are consequential to other amendments made in these Regulations.

These Regulations amend the meaning of “reference rate” in regulation 2(2) of the Taxes (Interest Rate) Regulations 1989 and the in the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 so that the determination of interest rates under those Regulations is based on the official bank rate determined by the most recent meeting of the Monetary Policy Committee of the Bank of England.

These Regulations omit regulation 2A in the Taxes (Interest Rate) Regulations 1989 and the in the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 (which provided that if the result of the calculation of the rate of interest under those Regulations for any purposes is less than zero, the rate shall be treated as zero for those purposes) and amends the provisions in those Regulations dealing with overpayments of tax or duty. These amendments omit a minimum rate in relation to late payments of tax or duty and increase the minimum rate in relation to overpayments from zero to 0.5% per annum.

The formulas to determine the rates of interest provided in the Taxes (Interest Rate) Regulations 1989 and the in the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 are simplified and harmonised by the amendments made in these Regulation so that (except in relation to large companies where regulation 3ZA or 3BA of the Taxes (Interest Rate) Regulations 1989 apply) the rate in cases of unpaid tax or duty is found by the formula-

reference rate + 2.5,

and the rate in the case of overpaid tax or duty is found by the formula-

reference rate – 1.

These Regulations also insert a new regulation 3AAA and a new regulation 4A in the Taxes (Interest Rate) Regulations 1989. New regulation 3AAA makes provision for interest on overpayments of the taxes which are omitted by these Regulations from regulation 3AA (so that that regulation can apply solely to late payments of tax). New regulation 4A provides for interest on overpayments of estate duty and inheritance tax in line with that for other taxes.

A full Impact Assessment has been produced for this instrument and forms part of the Impact Assessment produced for interest harmonisation in the Finance Bill 2009. It is available on the HMRC website under http://www.hmrc.gov.uk/budget2009/interest-penalties-2410.pdf.