Interest on tax defaults?

ArrBee

Not sure if this should go here or in the legal forum...

I was reading a newspaper article this morning about defaulters and they showed a break down of the amount owed.
it included unpaid taxes, penalties, and interest.

It got me thinking, is the interest calculation tied to any market rate?
Shouldn't the interest on unpaid taxes be next to nothing in the current climate?

I mean you can't really argue it is there as a deterrent when there is a separate "penalty" amount.

Stratvs

ArrBee wrote: »

It got me thinking, is the interest calculation tied to any market rate?
Shouldn't the interest on unpaid taxes be next to nothing in the current climate?

I mean you can't really argue it is there as a deterrent when there is a separate "penalty" amount.

https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/tca/part47.pdf
( Ch 5 p30 ) There is a table there of current/historic rates.

Interest is because they didn't get it when they should have.
Penalties are for being a naughty person.

If you want a good read on how they arrive at these settlement amounts :-
https://www.revenue.ie/en/self-assessment-and-self-employment/documents/code-of-practice-revenue-audit.pdf

barneystinson

The interest rate is statutory i.e prescribed by legislation, so it would require a change in the legislation to change the rate.

It seems you're talking about deposit rates when you suggest that the rate should be nil or close to nil, but when someone doesn't pay over their tax when it falls due, they're effectively borrowing money from the State - running an overdraft is probably the closest analogy I can come up with. 10% is fairly reasonable in that case, I'd have thought?

Allinall

Back in the day, Revenue used to use the same interest rate for overpayments of tax as they did for underpayments. If you overpaid, you would get a refund with interest.

A lot of people, and businesses were using this as an investment vehicle, with a guaranteed return significantly in excess of deposit interest rates.

Not sure exactly when the loophole was shut down.

ArrBee

Thanks all.

I wasn't thinking specifically about consumer deposit rates. but maybe a money market rate of some description. I dont know.

I like the overdraft analogy and will see it more as a loan from revenue now.

I hadn't considered that people would intentionally use their tax liability in the ways described above (as an investment prior to that loophole being closed, or for managing cashflow by delaying payments, etc) But that makes sense.

Marcusm

Allinall wrote: »

Back in the day, Revenue used to use the same interest rate for overpayments of tax as they did for underpayments. If you overpaid, you would get a refund with interest.

A lot of people, and businesses were using this as an investment vehicle, with a guaranteed return significantly in excess of deposit interest rates.

Not sure exactly when the loophole was shut down.

If by back in the day, you mean more than 30 years ago then it still wasn’t the same. Was 1.25% on underpayments and 1% on overpayments. From about Sept 1993 onwards it was quite attractive to overpay tax for a period. It was tax free too!

Rulmeq

Stratvs wrote: »

https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/tca/part47.pdf
( Ch 5 p30 ) There is a table there of current/historic rates.

Interest is because they didn't get it when they should have.
Penalties are for being a naughty person.

If you want a good read on how they arrive at these settlement amounts :-
https://www.revenue.ie/en/self-assessment-and-self-employment/documents/code-of-practice-revenue-audit.pdf

Would take some chancer to try and write it off against their tax bill

The interest is paid gross (that is, it is not subject to deduction of tax on payment) and is not allowed as a deduction in computing for tax purposes any income, profits or gains.