Guide to Financial Redress for Maladministration
Annex D: Example of simple interest calculation when delay is less than 10 years
The example below shows how simple interest is calculated in a theoretical case where benefit was underpaid from 03/02/97 (the date of claim) to 14/09/98, as a result of a Departmental error. £1,749.21 of benefit arrears were paid on 05/01/2000.
The indicator of delay in this example runs from 03/02/97 to 02/04/97 and interest is thus payable on the arrears for the period from 03/04/97 to 05/01/2000.
Method
| Tax Year | Amount | From | To | Months | Interest rate | Amount of interest |
|---|---|---|---|---|---|---|
| 1996/97 | £258.30 | 03/04/97 | 05/04/97 | 0.10 | 3.60% | £0.08 |
| 06/04/97 | 05/04/98 | 12 | 4.552% | £11.76 | ||
| 06/04/98 | 05/04/99 | 12 | 4.881% | £12.61 | ||
| 06/04/99 | 05/01/00 | 9 | 3.952% | £7.66 | ||
| 1997/98 | £1,010.40 | 06/04/97 | 05/04/98 | 12 | 4.552% | £45.99 |
| 06/04/98 | 05/04/99 | 12 | 4.881% | £49.32 | ||
| 06/04/99 | 05/01/00 | 9 | 3.952% | £29.95 | ||
| 1998/99 | £480.51 | 06/04/98 | 05/04/99 | 12 | 4.881% | £23.45 |
| 06/04/99 | 05/01/00 | 9 | 3.952% | £14.24 | ||
| 1999/00 | £0.00 | 06/04/99 | 05/01/00 | 9 | 3.952% | £0.00 |
| Totals | £1,749.21 | £195.06 |
Rules to follow:
1. The arrears of benefit upon which interest is due are allocated to the tax years in which they were due.
2. The interest rates given in Annex E are used to calculate the interest due in each tax year from the day following the end of the period of the indicator of delay up to the date arrears were paid.
3. For any arrears of benefit due in the current tax year
- the previous years interest rate is used or
- where an alternative rate has been supplied by DWP Viewpoint, the alternative rate. An alternative rate is supplied by DWP Viewpoint if the average of the monthly rates for the current year varies from the rate being used by more than 0.5%.
This example is for illustrative purposes only.