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HMRC internal manual

VAT Default Interest Manual

HM Revenue & Customs
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Calculating liability: Amount liable to interest

This is the amount of tax on which interest is due (ie the Interest Bearing Tax). If interest is not due on the tax amount then in order to prevent interest being calculated, an inhibit signal must be set on the VAT641/642 computer input document. If an inhibit is not set the tax will be included in the cumulative interest liable amount and interest will be calculated on it, see VDIM8030

Interest is calculated at the appropriate rate on the cumulative amount outstanding (the interest bearing balance) between each event date. It is only calculated where this balance is in a debit position. There is no entitlement to credit interest for any period of time where the tax net balance is in a credit position.

The end result is that the final total that is produced will have been altered during the calculation process by each event that affected the interest calculation.

The mainframe computer calculates interest as a percentage of the VAT under declared or over claimed. It is due on any interest liable amount identified on an assessment, less any relevant over declarations from the date the tax was due until it is paid

Unlike misdeclaration penalty, seeVCP10700, the interest charged may be one amount which can span many periods. The interest charged will continue to build up (subject to time limits) until the interest liable amount on the assessment has been cleared.

For a full view of interest procedures see VDIM5000.