What is restitution interest under Corporation Tax Act 2010 section 357YC?

Restitution interest is interest paid by HMRC to a company where tax was paid under a mistake of law or collected unlawfully. It must meet three conditions: HMRC pays interest due to a restitution right, the matter is finally determined by a court or settlement, and the interest exceeds simple statutory interest rates.

What are the three conditions for interest to qualify as restitution interest?

Condition A requires HMRC to be paying interest due to a company's right to restitution from unlawful tax collection or tax paid under a mistake of law. Condition B requires final court determination or binding settlement agreement. Condition C requires the interest not to be limited to simple interest at a statutory rate.

Does the portion of restitution interest equal to simple statutory interest still count as restitution interest?

Yes. Even where the total interest exceeds simple interest at a statutory rate, the portion representing simple statutory interest is still included within the definition of restitution interest. The entire amount is caught by the rules, not just the excess above the statutory rate.

How broadly is interest defined for the purposes of section 357YC?

Interest is defined broadly to include any amount equivalent to interest, meaning any sum determined by reference to the time value of money. It does not matter whether the interest arises from a court order, interim payment, settlement agreement or any other circumstances. Payments need not be labelled as interest to qualify.

Corporation Tax Act 2010 section 357YC

Meaning of "restitution interest"

Section 357YC defines "restitution interest" by setting out three conditions (A, B and C) that must all be met for interest payments from HMRC to a company to fall within the special tax rules for restitution interest.

Restitution interest is interest paid or payable by HMRC in connection with a company's right to recover tax paid under a mistake of law or tax unlawfully collected by HMRC (Condition A)
The claim must have been finally determined by a court (with no further possibility of appeal) or settled by a binding agreement between HMRC and the company (Condition B)
The interest must not be limited to simple interest at a statutory rate — though any portion that does represent simple interest at a statutory rate is still included within the definition (Condition C)
"Interest" includes any amount equivalent to interest, meaning any sum calculated by reference to the time value of money, and it does not matter whether it arises from a court order, an interim payment, a settlement agreement or any other circumstances

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