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HMRC internal manual

VAT Default Interest Manual

From
HM Revenue & Customs
Updated
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The law and legal powers: 3 year limit of interest

Assessments of interest are limited to a maximum of 3 years prior to the date the interest was assessed. This means that where a tax assessment is made for an accounting period more than 3 years old, provided it starts on or after 1 April 1990, it may be subject to interest but only for a maximum period of 3 years back from the day before the calculation date on the assessment. 

The calculation of interest is limited to a maximum of 3 years prior to the calculation date rather than the issue date; which is later and would result in a higher interest charge. This is set out in Section 74 (3):

‘(3) Where (apart from this subsection) -

(a) the period before the assessment in question for which any amount would carry interest under subsection (1) above; or

(b) the period for which any amount would carry interest under subsection (2) above,

would exceed 3 years, the part of that period for which that amount shall carry interest under that subsection shall be confined to the last 3 years of that period.’

For example an assessment with a calculation date of 2/10/09 in respect of accounting period 07/03, should only carry interest from 2/10/06 to 1/10/09. The exception to this rule is recovery assessments made under Sections 78A and 80(4)(A) for which there is a 2 year cap.