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HMRC internal manual

VAT Statutory Interest Manual

Amount on which statutory interest is calculated: no liability to pay statutory interest where a repayment supplement is paid

Under section 79 VATA, Repayment Supplement (RS) is payable in certain cases of official delay in processing VAT repayment returns. It is designed to encourage prompt and efficient responses at various stages of return processing, from receipt through to payment.

The existence of RS should never prevent us from making justified pre-repayment enquiries. The credibility of all VAT returns is of critical importance. Please refer to VCP10600 for detailed guidance on RS.

Section 78 (2) VATA excludes any liability to pay statutory interest on an amount which is to be increased by RS, or, on the RS itself. There is no discretion to exercise here because the statute clearly excludes any liability to pay statutory interest in such circumstances which was the policy intention at the time the law was drafted. If taxpayers claim that the RS is not adequate ‘compensation’ for the delayed payment and request statutory interest, the claim must be refused.

Support can be found in appeal R & N Kohanzad MAN/01/849 (VTD 19013)

A partnership submitted a VAT return claiming a repayment of over £94,000 input tax. The claim was initially rejected but subsequently HMRC agreed to repay a lesser amount of £26,000. Repayment Supplement was also paid. The partnership also claimed it was entitled to statutory interest but this was rejected.

The Tribunal dismissed the partnerships appeal, holding that the effect of section 78 (2) VATA was that interest was not payable on an amount increased by a supplement under section 79 VATA.

Any claim for statutory interest on a delayed payment of RS must also be refused.

VATA s78

VATA s79