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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: no liability to pay statutory interest on the late payment of SI

Statutory interest (SI) is not calculated nor paid on an amount of SI already paid by HMRC but which was paid late (this might happen for example where a payment of SI was due on a repayment claim but for some reason HMRC delayed releasing the SI amount). In these circumstances a taxpayer may consider that he is entitled to further SI calculated on the original SI to compensate for the delay.

In 1995 in a number of appeals by North East Media Development Trust LTD (NEMDT) [1995] VATDR 240 and MAN 95/2626 the Tribunal decided, contrary to our view, that statutory interest was payable under section 78 (1) (d) VATA on the late payment of statutory interest where delay was due to HMRC error.

In 1997 VATA section 78 was amended by section 44(1) FA 1997 by the addition of section 78(1A):

‘(1A) In subsection (1) above-

(a) references to an amount which the Commissioners are liable in consequence of any matter to pay or repay to any person are references, where a claim for the repayment has to be made, to only so much of that amount as is the subject of a claim that the Commissioners are required to satisfy or have satisfied; and

(b) the amounts referred to in paragraph (d) do not include any amount payable under this section’

This section has two effects:

  • The purpose of subsection (a) is to limit statutory interest solely to calculation on those principal tax sums which HMRC are liable to repay to the taxpayer, and which were overpaid because of an error by HMRC.
  • Subsection (b) addresses the NEMDT decision and provides that where there is a delay in paying interest under VATA section 78, further interest is not due under section 78(1) (d) on the delayed payment of interest.

Section 44(1) Finance (No 1) Act 1997 is deemed to have always had effect.

VATA s78(1) and (1A)