CH146020 - Interest: repayment Interest: overview

You must check whether, and from which date, the FA 2009 interest rules apply to the tax or duty you are dealing with. See CH140160 for full details.

HMRC pays repayment interest on overpayments and repayments.

Repayment interest applies a simple and consistent interest to overpayments of taxes, duties and penalties.

Repayment interest is recompense for the loss of use of the money that has been overpaid.

Eventually, repayment interest will apply to all taxes and duties (other than customs duties). However, the interest provisions currently only apply to the taxes, and associated penalties, listed at CH140160. This is because they are the only taxes for which there is an appointed day from which the rules apply.

Repayment interest is not payable on repayment interest. Therefore, the interest is simple interest, not compound interest.

There are also exclusions that will apply even once the interest provisions have been extended to all taxes and duties. Repayment interest does not apply to

  • amounts described in an order made by the Treasury, and
  • amounts payable as a result of an order or judgment of a court that has the power to allow interest on the amount.

There is a general rule, which is modified in particular circumstances by special provisions.

General rule

Repayment interest runs from the repayment interest start date until the repayment interest end date.

(1) Rule 1: payment of amounts which were paid to HMRC

Where the repayment interest relates to the repayment of an amount paid to HMRC, the repayment interest start date is the later of

  • the date on which the amount was paid to HMRC, and
  • the date on which the amount being repaid was due and payable to HMRC

This rule applies to all taxes to which the FA 2009 interest provisions apply

(2) Rule 2: payments of amounts on a return or claim
Where the repayment interest relates to the payment or credit of an amount (that has not be paid to HMRC) due because of a return or claim, the repayment interest start date is the later of:

  • the date when the return was required to be filed, or the claim to be made, and
  • the date when the return was actually filed, or the claim actually made.

The only tax regime for which this rule currently applies is VAT from [01/01/2023 for Prescribed Accounting Periods starting on or after 01/01/2023].

The repayment interest start date depends on whether the VAT return position for a prescribed Accounting Period was for a net ‘payment’ or a net ‘repayment’

Where the position for the prescribed accounting period was for a net payment and this changes to a net ‘repayment’ (VAT credit) as a result of a correction or claim, then both rules 1 and 2 apply. Repayment interst will be payable on both:

  • the amount which was paid to HMRC in respect of the prescribed accounting period

and

  • the net VAT credit that had not been claimed for that period

This scenario can arise where:

  • a claim is made under Section 80 VATA 1994 where a customer has over accounted for output tax on their payment VAT return,
  • a claim is made under Regulation 29 of VAT Regulations 1995 where a customer has deducted less input tax than they were entitled to on their payment VAT return.

The repayment interest end date is the date when the amount is repaid or set off against another liability. There are rules about allocating overpayments against other liabilities. See CH146060 for examples.

Special provisions

In particular circumstances there are special provisions that change the repayment interest start date and provide specific rules for VAT in particular circumstances – see CH146200 .

FA09/S102

FA09/SCH54
FA09/SCH54A