VDIM1030 - Introduction: What is default interest

This guidance deals with interest matters in respect of prescribed accounting periods starting on or before 31 December 2022. Interest matters with effect from 01 January 2023 are dealt with under Finance Act 2009.

Please see Compliance Handbook page CH140000 onwards to find the new interest rules guidance.

Default interest was first introduced by Section 18 of the Finance Act 1985 and it affects VAT periods starting on or after April 1990. Initially it is charged where appropriate on any amount of VAT which has been underdeclared or overclaimed, from the time the amount due should have been paid to the time it is assessed, see VDIM2020 and VDIM2030.

Default interest is intended to provide commercial restitution, see VDIM3000, for the loss of understated VAT and should not be considered a penalty.