From 1 July 2021, the Tax and Customs Administration will once again charge tax interest on any outstanding income tax and corporation tax for 2020. If your tax assessments have not yet been finalised or have not been set at a sufficiently high level, please take action in good time.
Back to ‘normal’
Whereas last year there was a temporary reduction in the tax interest rate to 0.01% (see our article), this year it is listed as 4% for income tax and corporation tax. If the (provisional) tax assessment is delayed for too long, this may result in a substantial additional payment of tax interest.
Tax interest
The Tax and Customs Administration calculates tax interest for the period starting 6 months after the end of the (financial) year to which the tax assessment relates. Interest continues to accrue until the deadline for payment of the tax assessment, which is usually six weeks after the date of the assessment. If the tax assessment is issued within six months (i.e. before 1 July), no tax interest is payable.
This tax interest is only relevant if tax is actually due. If you are due a tax refund, no interest is charged on it.
Make your tax return in good time
Make sure you complete your 2020 tax return on time. If the return is submitted before 8 April 2021, the Tax and Customs Administration guarantees that the tax assessment will be issued before 1 July 2021. This ensures that you will not have to pay any tax interest.
If this didn’t work, please submit your tax return by 8 May 2021 or apply for an extension.
Apply for a provisional tax assessment in good time
Are you liable for income tax for 2020 but unable to submit your tax return by 8 May 2021? If so, please apply to the Tax and Customs Administration for a provisional assessment in good time. If a request is submitted to the Tax and Customs Administration before 8 May 2021 to issue a provisional assessment, the provisional assessment will be issued before 1 July 2021. You will then avoid having to pay tax interest on the amount of the provisional assessment. If it later transpires that you owe more tax, you will, of course, have to pay tax interest on the additional amount.
Example
If the 2020 income tax assessment is issued with a date of 1 October 2021, the six-week payment period ends on 12 November 2021. Suppose the amount of income tax due is €4,500.
Tax interest is then calculated for the period from 1 July 2021 to 12 November 2021 inclusive. Tax interest of 4% is payable for this period. In practical terms, this amounts to tax interest of €66. The total tax assessment therefore comes to €4,566.
If the tax bill has not been paid by 12 November 2021 at the latest, collection interest of 0.01% will begin to accrue from 13 November 2021. This will continue to accrue until the date of payment.