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HMRC internal manual

VAT Statutory Interest Manual

HM Revenue & Customs
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Amount on which statutory interest is calculated: introduction

Having established that the overpayment was due to official error by HMRC, it is necessary to confirm the amount on which Statutory Interest (SI) should be calculated.

Statutory interest should be calculated on the gross amount claimed after allowing for normal netting of input tax and output tax in the same accounting period, including set off, required under sections 80(2A) and 81(3A) VATA (any unpaid liability arising out of the same official error). If any of the resulting credit is to be set off against other unpaid liabilities, that credit must also be included in the amount on which interest is calculated. See VSIM4600 for an explanation of the set off provisions.

Support for this interpretation can be found in the Tribunal decision of North East Media Development Trust (1995) VATDR, where it was decided that the interest should be computed upon an amount equal to the input tax net of the output tax underpaid.

VATA s78