Reviews and appeals: interest following HMRC's success at tribunal
In addition to section 74 VATA there is a further provision within the VAT Act which empowers HMRC to charge default interest in specific circumstances.
Section 85A (payment of tax on determination of an appeal) was introduced with effect from 1 April 2009. Subsection (3) requires the unsuccessful appellant to pay any amount not paid or deposited, or repay any VAT credit not payable, to HMRC with interest at the rate applicable under section197 FA 1996 (the same as section 74).
It is highly likely that the disputed amount or VAT credit referred to in this subsection will relate to a VAT assessment or recovery assessment on which default interest under section 74 has already been assessed. The VAT assessments and recovery assessments have to be paid before an appeal can be entertained unless hardship is granted but the default interest is suspended pending determination of the appeal. Therefore in the majority of cases there will be no additional interest under section 85A to collect. The default interest and further interest under section 74 already accrued up until the assessment was paid remains due.
If however at the time the disputed VAT assessment was raised a decision was taken not to assess default interest because for example it did not represent commercial restitution (see VDIM3010), then in order to avoid a fundamental change which could introduce complexities the position will remain the same, that is HMRC would not seek to collect interest in these circumstances.
Where hardship has been granted and the assessment not paid prior to the appeal hearing, if default interest under section 74 has already been assessed then the further interest will continue to accrue until the VAT assessment is paid only now it will be due under section 85A(3). If however default interest under section 74 was not assessed then HMRC will not collect interest per section 85A (3) from the unsuccessful appellant in these circumstances.
Section 85A (3) also applies to section 85 agreements covering amounts due from the unsuccessful appellant.
This guidance also applies equally to disputes over penalties.
Any interest charged under section 85A (3) is not an appealable matter as it is not listed in section 83.