How is interest charged on late payments?

How is interest charged on late payments?

Statutory late payment interest 2021

The late payment interest is an ancillary benefit that will be demanded from taxpayers and offenders as a consequence of a payment made after the deadline or the filing of a self-assessment or return resulting in an amount to be paid after the deadline established for this purpose in the tax regulations, the collection of an improper refund or in the other cases provided for in the tax regulations.

If these lines have sounded like Greek to you, don’t worry, it is understandable. For practical purposes, late payment interest is the Treasury’s way of penalizing its debtors, although it is also applied to debts contracted by the Tax Agency itself with its taxpayers in the event that the refund has not been made by December 31.

If it is the Inland Revenue that has not resolved a procedure in due time and within the stipulated deadlines, then late payment interest will not be demanded. Such procedures include requests for compensation, the settlement act or administrative appeals in which the suspension of the act by agreement is applicable.  However, this rule shall have no effect in the case of deferment or fractionation of tax payments.

Late payment interest regulations

Interest on late payment is applied when you fail to meet your payment obligations. Its purpose is not to penalize, but rather to compensate those who should have received money and have not done so. For this reason, in order to be charged, there are a series of requirements:

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In the case that nothing was established in the contract on the interests of delay, an extrajudicial or judicial claim would be necessary so that interests of delay can be requested, although the most habitual thing is that it is not thus and if there is a specific mention on the collection of the interests of delay in your contract or writing. In other words, late payment can be claimed from the moment you stop paying.

In a personal loan, the interest for late payment will be the interest on the loan plus a maximum of two points over the interest on the remuneration1. In other words, if the loan interest rate is 6%, the default interest may be 8%.

As of June 16, 2019, the new mortgage law establishes that late payment interest may be a maximum of three percentage points higher than the interest on interest. That is to say, they may not exceed the interest rate you pay for the mortgage by more than 3 points5.

Late payment interest on commercial invoices 2020

But, as we have already dedicated many comments, articles and sections to deal with late payment and how to collect unpaid debts, we are going to dedicate this article to deal with a subject unknown by many companies and professionals, but important from the economic point of view, because it can suppose the collection of amounts of certain importance, not negligible in these times of economic tightness.

We are referring to the interests of delay for the delays of the debtor in the payment of the amounts that he owes and that, in many cases, can suppose, as we say, not negligible amounts that compensate not only the delay in the payment, but the efforts, especially of economic character, that we have realized to collect the debt.

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With this commentary what we want to make clear, therefore, is that the delay in the payment of a debt generates to the creditor some inconveniences, some damages, and must be compensated for it; and it is here where the interests come into play.

In summary, that the delay in the payment of a debt, and the damages that this causes, must be compensated by the debtor with the payment of the interests of delay that are of application in each case and this must be kept in mind by the creditor because, depending on the amount of the debt and, in its case, of the time that the debtor is delayed in paying, the interests of delay can suppose important amounts.

Interest on late payments solved exercises

If your company has supplied goods or services to a customer (in accordance with the terms of the commercial contract) and the customer has not paid you for them within the agreed period, you are entitled to charge interest and compensation on the payment due to you.

The entrepreneur cannot claim interest for late payment in transactions with consumers. If you have a problem with a consumer, the rules set out above do not apply. For more information on problems with consumers, see:

My company is established in an EU country (In this case, the 27 EU member states + the UK (until the end of the transition period) + Iceland, Liechtenstein, Norway and Switzerland) and another company operating in the same country owes me money.

In addition to the interest owed, you are entitled to claim a flat-rate compensation of EUR 40 (or equivalent) for each invoice charged late (in some EU countries this amount may be higher when calculated on the basis of the invoice value).

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