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When a company makes quarterly instalment payments that turn out to have been unnecessary or excessive it receives ‘credit interest� on the excess.

Credit interest runs from the date on which the overpayment arises (or from the due date for the first instalment payment, if later) to the earlier of:

• the date on which the overpayment is extinguished (for example, because a later instalment has become due or because of a repayment of tax), and
• the normal due date (nine months and one day after the end of the accounting period).

Credit interest is given at a higher rate than repayment interest under ICTA88/S826.

REG8 amends ICTA88/S826 to provide for credit interest for both:

• large companies, for early payment or overpayment of instalments, and
• other companies, for early payments generally.

Credit interest can never run from a date earlier than the due date for the first instalment payment.

If the company is not required to pay by instalments, credit interest cannot run from a date earlier than what would be the first instalment date if it were liable to make quarterly instalment payments.

As with all interest payable under ICTA88/S826 for accounting periods ending on or after 1 July 1999, credit interest is taxable in computing profits for CT purposes: FA98/S34, see CTM92320.

Regulation 8 of the Taxes (Interest Rate) (Amendment No 2) Regulations 1998 amends the Taxes (Interest Rate) Regulations 1989 by providing for credit interest to run at a higher rate than repayment interest.

The formula for credit interest is reference rate minus 0.25 per cent. The rate for repayment interest for CTSA accounting periods is reference rate minus 1 per cent