If you are facing an open tax enquiry, a prudent approach to minimise any future interest costs could be to obtain a certificate of tax deposit.
Under the Certificate of Tax Deposit scheme an individual can deposit money with HMRC and use it later to pay any future tax liabilities which may arise.
Tax liabilities under investigation by HMRC
A tax deposit can be held against a tax liability that is under investigation by HMRC. Using a deposit in this way can help stop late payment interest accruing on the amount owed while it’s under investigation. These deposits can also attract interest on a daily basis for up to six years (depending on the amount held) and can be withdrawn at any time.
If you make a deposit before the due date of the tax liability under investigation interest will be added to the value of the deposit. The element of tax due that is covered by the deposit will be treated as being paid on its due date and will therefore not attract late payment interest.
Any interest that has accrued will be added to the value of your certificate when you use it to pay off a tax liability or when you withdraw your deposit. When you do either of these things, HMRC will send you a letter to confirm the exact amount of interest that you have received.
Every time an individual makes a deposit to HMRC, they will be issued with a Certificate of Tax Deposit by HMRC. These certificates must be retained, in order to use the deposits to pay a tax liability or to withdraw the deposits.
The scheme is open to:
- partnerships – to pay liabilities of the partnership
- individual partners – to pay liabilities that apply solely to them
- personal representatives – to pay liabilities of a deceased individual’s estate
- trustees – to pay liabilities of the trust
Certificates of Tax Deposit are not suitable for everyone but if you want to put funds aside for any future tax liability, this could be the answer. Should you have any further queries on this matter please contact Sue Stephens, Personal Tax Consultant.