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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Post audit action: default interest

As well as considering Penalties, when inputting assessments officers should also consider whether interest should be assessed for. Interest should only be assessed where “commercial restitution” is required. In other words, the compensation required when the Treasury has been deprived of VAT for a period of time when a trader has:

  • failed to render a VAT return and accepted a central assessment that is too low; and/or
  • underdeclared the amount of VAT due on a VAT return where none of the VAT is recoverable by a third party as if it were input tax.

Further guidance on default interest, including when inhibits should be applied, can be found in VCP10891 

The officer should record in the EF audit report reasons for under declarations and the fact that the trader has been issued with a written reminder of his obligations. A copy of the reminder letter should be retained in the trader’s folder. If, on the next audit, the officer finds that the under declarations have continued, action should be taken in accordance VAEC - VAT Assessment and Error Correction. You should award sufficient compliance points to reflect your concern. See VSME56000 re compliance points. Managers should review the allocation of points to ensure uniformity.

Consider whether the error may have Direct Tax implications and liaise with them as appropriate.