Compensatory interest and late payment penalties

Many questions will be answered in the Customer Guide: Compensatory Interest and Late Payment Penalties (PDF 69 KB)

When does this change start?

From 1 October 2018 the new system came into effect for all duty that hasn’t been paid in full at the right time.

Who does this change affect?

Importers, brokers and excise clients who have duty outstanding or have claimed an incorrect refund or drawback.

Why has this changed?

The new system is more transparent and clearer when remissions can be granted. It's also more proportionate for non-compliance. Additionally, it now applies to all importers, exporters and excise licensees. 

Will Customs pay me compensatory interest if I inadvertently overpay, for example where a duty concession was applicable but not applied?

Customs will only pay compensatory interest to a duty payer if the duty is refunded as a result of:

• a Customs Appeal Authority decision, or
• from 1 October, an Administrative review .

From 1 October, this interest payment is based on the 90-day bank bill rate- the same rate we will charge duty payers for inadvertent underpayment errors.

However, if the error was a result of a mistake in the duty payer’s self-assessment, we will refund the overpayment but not pay compensatory interest.

The provisions for Customs paying interest to duty payers for their overpayment errors are largely the same under the new 2018 Act (s128) as they are under the 1996 Act (s93).

The only changes in this area are to include the new Administrative review into the current process and clarify our payment rates.

If I make a mistake in my entry and underpay duty but voluntary disclose the mistake will I still be charged compensatory interest?

Yes. However, we will charge a reduced interest rate if the following conditions are met:

• the mistake was voluntarily disclosed to us before we notified you of any compliance action, and
• it was demonstrated to us that the mistake was inadvertent, and
• all duty and interest is paid by the due date on the assessment notice/statement of liability. If all other obligations are met, we issue a statement of liability with the reduced interest rate. If this isn’t paid by the due date, this becomes null and void and new statement of liability is issued with the higher interest rate. 

The reason for this is that compensatory interest is not a penalty. It’s to compensate the Crown for loss of money. However, we want to encourage voluntary disclosure of mistakes and we recognise that when an error was inadvertent, charging a higher interest rate won’t have any effect on compliance.

Also, voluntarily disclosing errors means you won’t be charged administrative penalties or receive an infringement notice, depending upon the type of mistake/offence that occurred. View more information on Administrative penalties  and the Infringement notice scheme.

When will a customer be told they owe compensatory interest?

Compensatory interest is charged whenever duty has not been paid in full. This includes late payments, shortfall payments and incorrect refunds and drawbacks. The purpose of compensatory interest is to compensate the Crown for the interest it could have earned had the correct amount of duty been paid on time.

Compensatory interest is calculated on a daily basis, and charged for the entire period the duty is outstanding:

• For late payments and shortfall payments, interest is charged from the date the duty should have been paid, until the date the duty is paid. If you discover an error and correct it within your deferred payment period, compensatory interest will not be charged.
• For incorrect refunds and drawbacks, interest is charged from the date the refund or drawback was paid to the duty payer, until the date it is repaid to Customs.
• For late payments, you'll receive a reminder letter within a week of the late payment advising you that interest and penalties will apply and asking you to settle the debt. This will be followed eight days later with a Statement of Liability detailing the interest and penalty charges.
• For short fall payments, the interest and penalty charges will be included in the assessment notice.
• Deferred account holders accruing interest charges will receive an assessment notice. Interest will not be added to their next deferred account statement.

View the video for more info:

Video transcript: When will a customer be told they owe compensatory interest?

Compensatory interest is charged whenever duty has not been paid in full. This includes late payments, shortfall payments, and incorrect refunds and drawbacks. The purpose of compensatory interest is to compensate the Crown for the interest it could have earned had the correct amount of duty been paid on time.

Compensatory interest is calculated on a daily basis, and charged for the entire period the duty is outstanding:

For late payments and shortfall payments, interest is charged from the date the duty should have been paid, until the date the duty is paid. If you discover an error and correct it within your deferred payment period, compensatory interest will not be charged.

For incorrect refunds and drawbacks, interest is charged from the date the refund or drawback was paid to the duty payer, until the date it is repaid to Customs.

I’m an importer with a deferred account for payments. If I adjust my entry before my account is due will I be charged compensatory interest?

No, as long as you pay the adjusted amount by the due date on your deferred account.

However, if you pay after the due date, interest will accrue from the date the payment was due to the date the payment was made.

This information is in the Duty Payers Guide (PDF 2 MB).