# Cmrc

how do you work this: small companies charge interest rate of 8% above base rate ( vat 20%) what is the interest chargeable on net £3000 which is 60 days late when the base is is 1%?

• Firstly we are given the Net amount of the debt but told that interest is payable on the gross. So the first thing to do is calculate the gross value of the debt - £3000 * 120 % = £3600 gross.

We are then told that interest is charged at 8 % above the base of 1 % - so it is charged at 9% per annum.

9% of a £3600 debt is £324 interest due in the whole year.

However, the debt is only outstanding for a part of the year though so we have to pro rata it as follows - 60/365 * £324 = £53.26

I'm not sure if that is how a textbook would teach you how to do it, but this is how I would attempt the question! • Why is interest charged on the gross amount? That means interest is being charged on the VAT which isn't a debt to the company. Isn't interest only charged on the net amount? I haven't seen the question so maybe it says in there that interest is charged on the gross but it doesn't specifically say that in the OP's post.
• If you look at the question the OP is refering to (question 1.3 on CBA2) The question states interest is charged on the gross amount.
• Re cmrc

Hi thank you for replying, I have got similar question but as follows;
The bank of England charge interest rate at 2% a company have a late payment of £3000.00 when the base is 2% how do you calculate that? do you add the small company interest rate on?

A small business has the right to charge interest at up to 8% above base rate, but they are not obliged to do so. So, they could charge 5% or they could charge nothing at all. The answer to the above question could just a equally be Nil if the business choose not to charge interest 