Late-payment interest with relief
The Tax Administration can impose late-payment interest with relief on a taxpayer who has not paid a back tax or an additional prepayment by the due date. You can avoid having to pay late-payment interest with relief by making sure – when the tax year is still ongoing – that your withholding or prepayments are high enough. If the tax year has already ended, you can submit a request for an additional prepayment and pay the required amount before the end of the first month of the new tax year.
If the Tax Administration adds late-payment interest to back taxes, €20 is subtracted from the calculated sum of the interest. However, the maximum amount to be subtracted equals the sum of the interest. If the Tax Administration has imposed late-payment interest on an additional prepayment, the sum of the interest cannot be reduced that way.
You can supplement your paid-in prepayments or withholding for one month after the end of your tax year without having to pay interest with relief.
- In other words, the month of January is when additional prepayments can be requested and paid by individuals, self-employed operators of a trade or business, partners of general partnerships, partners of limited partnerships, and operators of agricultural and forestry activities.
- Business and corporate taxpayers can make additional prepayments in the same way, i.e. without having to pay late-payment interest with relief, during the first month after the end date of their accounting year.
Steven notices that the total of his paid-in prepayments for 2019 will not be enough. On 15 January 2020, he uses MyTax to ask for an additional prepayment to be calculated for him. He selects 24 January as the due date. He pays the amount to the Tax Administration after a couple of days. He enters his bank reference number for income taxes when making the payment. In these circumstances, no interest with relief is collected, and no back taxes will have to be paid.
The accounting period of a limited liability company is 1 January 2019 – 31 December 2019. The company submits a request for an additional prepayment on 27 January 2020, setting that day as the due date for the prepayment. It pays the amount to the Tax Administration on 29 January, using its bank reference number for income taxes. In these circumstances, the prepayment does not accrue late-payment interest with relief because the company paid it in full before one month had elapsed after the end date of the company’s tax year. However, the company must pay interest for late payment for the period 28–29 January 2020 because it paid the amount after the due date.
How to calculate the late-payment interest with relief
Late-payment interest with relief is calculated by adding two percentage points to the Reference Rate of the Bank of Finland. However, the interest must be at least 0.5%. For 2020, the rate for late-payment interest with relief is 2.0%.
What is the period for late-payment interest with relief?
The interest starts accruing on the first day of the second month following the end of the taxpayer’s tax year. It is calculated according to the actual number of days of the months and years.
The late-payment interest with relief stops accruing on
- the due date for the taxpayer’s back taxes
- the due date of an additional prepayment if you are paying an additional prepayment in order to avoid having to pay back taxes
You can pay the amount before the due date but doing so will not reduce the sum of the late-payment interest with relief.
The company has an April-to-March accounting period. On 24 April 2020, it submits a request for an additional prepayment, selecting 11 May 2020 as the due date, and it pays the amount on that day as well, i.e. on 11 May. The reference number for corporate income tax was used for the bank transfer. Late payment interest with relief will be calculated for the additional prepayment for the period 1 to 11 May 2020.
Formulas for calculation of late-payment interest with relief
Late-payment interest with relief to be added to an additional prepayment:
(Interest days × interest rate × principal) / number of days in the year × 100 = (the sum of the) interest with relief
Late-payment interest with relief to be added to (a taxpayer’s) back taxes:
((Interest days × interest rate × principal) / number of days in the year × 100) – €20 or the maximum subtraction = (the sum of the) interest with relief
Table: Late-payment interest with relief
|Duration of the taxpayer’s tax year||Additional prepayments can be made without having to pay interest with relief||Start of the period for late-payment interest with relief|
|Individual taxpayer (the calendar year)||1 January – 31 December||All through January||After the tax year, starting on 1 February|
|Corporate taxpayer, accounting year 1 January – 31 December||1 January – 31 December||All through January||After the tax year, starting on 1 February|
|Corporate entity with a non-calendar year||Same as the entity’s accounting year||Within one month after the end date of accounting year||From the 1st day of the 2nd month after end of accounting year and tax year|
If you pay an additional prepayment after its due date
If you pay an additional prepayment after its due date, interest must be added to it due to late payment. The interest period begins on the day after the due date and ends on the date when you pay. For 2020, the rate of (ordinary) late-payment interest is 7.0%. Read more about interest rates and consequences of late payment.
William asked for an additional prepayment to be calculated for him, and the due date that he selected was 16 March. However, he did not pay it until 19 March. Late payment interest with relief will be calculated for the additional prepayment for the period 1 Feb – 16 March. Ordinary late payment interest will be calculated from 17 to 19 March. If William uses MyTax on 19 March to make his additional prepayment, MyTax will have calculated the exact amount of interest for him.