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HMRC internal manual

VAT Default Interest Manual

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HM Revenue & Customs
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The law and legal powers: Establishing liability to interest

VAT Act 1994, Section 74. Subsections (1) and (2) state that

‘(1) Subject to section 76(8), where an assessment is made under any provision of section 73 and, in the case of an assessment under Section 73 (1) at least one of the following conditions is fulfilled, namely:

(a) the assessment relates to a prescribed accounting period in respect of which either -

(i) a return has been previously made

(ii) an earlier assessment has already been notified to the person concerned.

(b) the assessment relates to a prescribed accounting period which exceeds 3 months and begins on the date with effect from which the person concerned was, or was required to be, registered

(c) the assessment relates to a prescribed accounting period at the beginning of which the person concerned was, but should no longer have been, exempted from registration under paragraph 14(1) of Schedule 1 or under paragraph 8 of Schedule 3, or paragraph 7 of Schedule 3A,

the whole of the amount assessed shall, subject to subsection (3) below, carry interest at the prescribed rate applicable under section 197 of the Finance Act 1996 from the reckonable date until payment.

(2) In any cases where

(a) the circumstances are such that an assessment falling within subsection (1) above could have been made, but(b) before such an assessment was made the VAT due or other amount concerned was paid (so that no such assessment was necessary),

the whole of the amount paid shall, subject to subsection (3) below, carry interest at the rate applicable under Section 197 of the Finance Act 1996 from the reckonable date until the date on which it was paid.’

Section 74(2) provides for interest to be charged where for example a return has been submitted (or a central assessment issued) and if a VAT assessment was due to be raised for the same period, but the taxpayer paid the outstanding amount first. Circumstances where this provision would be used are extremely rare and Central Policy TAA should be consulted before using this provision, see VDIM1040.