The interest element of any restitution award to a company in respect of a claim for repayment is liable to Corporation Tax at the rate in force at the time payment is made, currently 20%.
The government has provided that a special 45% rate of corporation tax on income is to be applied to restitution interest. This was legislated for in Finance (No. 2) Act 2015. The measure will ensure that payments of restitution interest are taxed at a rate which reflects:
- the rates in force over the period to which typical awards relate; and
- the effect of compounding interest not taxed in the year in which it accrued.
Given the size of some recent awards and the current low levels of corporation tax, it is not surprising that this change has been made to ensure that recipients of such interest do not enjoy an unfair tax advantage.