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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: Time limits for assessing interest

VAT Act 1994 Section 77 states that

‘77 (1) Subject to the following provisions of this section, an assessment under section 73, 75 or 76 shall not be made-

(a) more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned, or

(b)………

77 (2) Subject to subsection (5) below, an assessment under section 76 of any amount due by way of any penalty, interest, or surcharge referred to in subsection (3) of that section may be made at any time before the expiry of the period of 2 years beginning with the time when the amount of VAT due for the prescribed accounting period concerned has been finally determined.’

In deciding whether (1)(a) or (2) should apply, legal opinion confirms that if the period of two years mentioned in (2) has expired, but not more than the four years mentioned in (1)(a), an interest assessment may be made. Nothing in the wording of subsections (1) and (2) bars an assessment in such circumstances. This means that the time limit for interest assessments to be made is the later of the time set out in subsection (1)(a) or (2). However cases where subsection (1)(a) applies will be extremely rare.

Generally, deciding when the tax due was finally established is not a problem, as an initial interest assessment is issued at the same time as the tax assessment and on the same document (Section 76 (5) allows for such a combined assessment). However it is important to know when the tax was finally established particularly if a manual assessment is required or further interest assessments become due, in order to avoid any out of time assessments.