Part 4: Income tax, corporation tax and capital gains tax Section 38: Restitution interest payments Details of the section Chapter 4
Chapter 4 contains sections 357YO to 357YT.
	Section 357YO sets out the obligation on HMRC to apply a withholding tax from a payment made which at the time of payment is or will be restitution interest chargeable to corporation tax where two conditions (Condition 1 and Condition 2) are met. These conditions define what restitution interest is for the purpose of the withholding tax.
	HMRC will have an obligation to withhold tax on a payment if that payment relates to interest paid on a claim for restitution relating to the payment of tax under a mistake of law relating to taxation matters or the unlawful collection of tax (Condition 1) and the claim is not for statutory interest payable under the Tax Acts (Condition 2).
	The rate applied will be the restitutionary payments rate of 45% and it will be applied to the gross amount of the payment. The tax deducted will be treated for all purposes as paid by the company on account of the company’s liability to corporation tax chargeable on the restitution interest under Chapter 2.
	Section 357YP provides that the withholding tax deducted will be treated as being paid by the company on account of it liability to the charge to corporation tax on the restitution interest when it is formally assessed. This section also deals with the consequences if tax has been deducted from a payment which ultimately cannot or will not be regarded as restitution interest. If it turns out to be the case that the payment was not restitution interest at the time the tax was withheld, and the company is not required to pay back the net amount it has received, HMRC are required to repay the amount of tax withheld. If the company is required to pay back the gross amount of the restitution interest, provision is made for the amount of tax withheld to be treated as money repaid in partial satisfaction of the liability to repay the gross amount.
	Section 357YQ provides for an assessment to be raised for an accounting period in which the restitution interest is chargeable and that any withheld tax is to be credited against the tax due.
	Section 357YR makes provision for statutory interest to be paid where the amount of withheld tax exceeds the tax liability.
	Section 357YS provides for a right of appeal against the deduction by HMRC of the tax withheld from the restitution interest to be given in writing.
	Section 357YT sets out that tax charged at the restitution payments rate is to be disregarded for the purposes of the quarterly instalment payment regime.