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HMRC internal manual

VAT Default Interest Manual

HM Revenue & Customs
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Introduction: What is default interest

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.