Tax & Accounting News
Tax payments – cleared funds
09/08/2011
Taxpayers should be aware that, in some cases, payment by cheque rather than by electronic transfer could avoid a surcharge or interest charge.
As far as HMRC is concerned, payment for most taxes is treated as being received when a cheque clears, not on the day it is received. The rules regarding this changed for VAT as of 1 April 2010 and from 1 April 2011 for corporation tax. In each case, the date on which the cheque clears is now taken to be the second business day after the date of receipt.
On the dates mentioned above, it was made mandatory to pay the taxes by electronic transfer. However, HMRC will still accept cheques, although cheque payments via Bank Giro or at a Post Office will be treated as electronic payments.
The ‘cleared funds’ rules do not apply to other tax payments such as income tax and capital gains tax. For these taxes, HMRC still treats the payment date as the date the cheque is received.
Given that cheques are acceptable, if not encouraged, taxpayers should post them at least a week before the due date to allow for postal delays, plus three working days for the cheque to clear.
The reason why payment by cheque could be deemed ‘faster’ than paying by electronic transfer is that HMRC cannot currently make or receive payments using the Faster Payments Service offered by some banks. Consequently, an online payment made at a weekend or just before a Bank Holiday could take three or more days to be received.
Also, the date on which a cheque payment is treated as received can be earlier than the actual date of receipt. For example, a cheque found in Monday morning’s post would be stamped as having been received on the Saturday.
The best method, of course, to avoid all delays, is to arrange a special or hand delivery of a cheque to the tax office.
