Repayment interest on VAT credits or overpayments
Check when you’re eligible for repayment interest if HMRC are late in settling a repayment claim from a VAT Return or VAT you've overpaid.
If you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC will usually repay you the difference by making a VAT repayment. We will also usually repay you any VAT amounts you’ve overpaid.
If HMRC is late in paying you, you may be entitled to repayment interest on any VAT that you are owed. For accounting periods starting on or after 1 January 2023, repayment interest replaces the repayment supplement.
Calculating VAT repayment interest
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
When you’re not eligible for repayment interest on overpayments
Repayment interest is paid on overpayments that relate to an amount due to HMRC. We will not pay interest when you’ve paid in error.
For example, you pay £1,000 instead of £100.
Start date for VAT repayment interest
When HMRC starts calculating repayment interest, depends on whether we’re repaying an amount you’ve:
- already paid to HMRC
- not paid, which is shown as credit owed to you on a VAT Return or a claim
If you’ve already paid the VAT to HMRC
Repayment interest is calculated from the day after the later of these 2 dates:
- when you paid the VAT to HMRC
- the payment deadline for your accounting period
HMRC will not pay interest on early payments of VAT.
If you’ve not paid the VAT to HMRC
Repayment interest starts on the day after the later of these 2 dates:
- the due date for your VAT Return for the accounting period
- the date you submitted the VAT Return or claim
Exceptions to rules for start dates
If you’re claiming an amount, part of which is VAT paid to HMRC, and part of which is VAT you have not paid to HMRC, both rules for start dates can apply.
Repayment interest is worked out differently for payment on account customers. If they pay instalments that are more than what they owe for a VAT accounting period, repayment interest on the overpaid amount starts from the date the VAT Return is due.
If you have any overdue VAT Returns, repayment interest on a repayment VAT Return will only start when HMRC receives the last overdue VAT Return.
For example, repayment interest on a repayment VAT Return starts from 1 January but you have an overdue VAT Return to submit. If you submit this on 15 January, repayment interest starts from this date.
HMRC may ask you to pay a VAT security. If you do not pay this, you will not receive repayment interest on your repayment VAT Return:
- from the date HMRC gives you notice to pay a security
- until you pay that security
End date for VAT repayment interest
Repayment interest ends when HMRC either repays the VAT to you, or sets it off against a different VAT or tax amount that you owe them — your other debts.
If HMRC sets it off against your other debts, repayment interest ends on the date when either:
- you submitted the VAT Return or claim
- the debt it was set off against was due
Normally no repayment interest would be due.
Repayment example where VAT has not been paid
Company Z has a VAT credit of £10,000 with repayment interest for 3 days
They use a monthly accounting period. The dates are:
- 30 September — the company’s monthly accounting period ends
- 1 November — they submit their VAT Return with a VAT credit of £10,000
- 7 November — is when their September VAT Return is due
- 10 November — HMRC pays company Z £10,000
Company Z is due repayment interest on £10,000 for 3 days from 8 November 2023 until 10 November 2023 inclusive.
For this example, the Bank of England base rate is 1% making the repayment interest rate 0.5%.
Repayment interest for 3 days is 41 pence.
(£10,000 × 0.5% × 3 ÷ 365 days) = 41 pence.
Repayment example where VAT has been paid
Company X has overpaid by £3,000 with repayment interest for 18 days
Company X uses a quarterly accounting period. The dates are:
- 31 March — company X’s quarterly accounting period ends
- 7 May — they submit their VAT Return and pay VAT of £10,000 on the return due date
- 12 May — company X identifies an error in its March VAT Return and claims a repayment of £3,000 VAT
- 25 May — HMRC repays company X £3,000
Company X is due repayment interest on £3,000 for 18 days from 8 May 2023 until 25 May 2023 inclusive.
For this example, the Bank of England base rate is 3% making the repayment interest rate 2%.
Repayment interest for 18 days is £2.96.
(£3,000 × 2% × 18 ÷ 365 days) = £2.96.
Help and support
Find further examples in the recorded webinar Overview of new VAT penalties and interest charges.
Last updated 30 January 2024 + show all updates
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Information on eligibility criteria for repayment interest on overpayments and start dates when VAT is not paid to HMRC has been updated. Information on repayment interest end dates when HMRC sets it off against your debts has also been updated.
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Translation added.
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When you're not eligible for repayment interest and when repayment interest ends has been clarified.
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First published.