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HMRC internal manual

VAT Default Interest Manual

Calculation of interest: The interest calculation formula

The interest calculation formula is


  • Number of days mutiplied by the interest liable amount, then
  • Multiplied again by the interest rate, then
  • Divided by the number of days in the year, which then
  • Equals the interest 

Every time one of these components changes, for example a change in the interest rate or a leap year, a new calculation line has to be started.