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HMRC internal manual

VAT Statutory Interest Manual

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HM Revenue & Customs
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For what period is statutory interest due: the law

VATA section 78 (1) requires statutory interest to be paid for the ‘applicable period’

Subsections (4) - (7) determine the ‘applicable period’

VATA section 78(4) and (5) apply to section 78(1) (a) over-declared output tax and (b) under-claimed input tax, they define the ‘applicable’ period as starting:

  1. For a payment return: on the date on which the disputed amount was ‘paid’, i.e. the date we received payment.
  2. For a repayment return: on the date HMRC authorised payment of that return. Remember authorisation of repayment returns usually occurs within 30 days. So statutory interest, in these cases, would not necessarily start from the date the return was received.

It ends in both cases on the date HMRC authorised repayment of the principal claim, not the date it was actually paid.

We consider authorised to mean the date the countersigning officer signs the form that authorises repayment of the principal sum overpaid; ideally the taxpayer should be written to at the same time.

Note: If the taxpayer has over-declared output tax or under-claimed input tax and you accept that statutory interest is due, the interest should be calculated on an accounting period by period basis starting from the dates at (a) and (b) above. We cannot simply argue that we are only in error from the time a tribunal or court decision goes against us. If we accept that we are in error the taxpayer must be compensated from when they were financially disadvantaged because of that error.

Subsection 78 (6) applies to claims falling within section 78 (1) (c ) overpayment other than (1) (a) or (b). The applicable period starts from the date the payment was received by HMRC and ends on the date repayment of the sum was authorised, not the date it was actually repaid.

Subsection 78 (7) applies to claims falling within section 78 (1) (d) delay.

The applicable period starts from the date HMRC might reasonably have been expected to authorise repayment, if not for the error, and ends on the date when the payment was authorised, not the date it was actually repaid.

VATA section 78 (12) provides that authorisation of payment also occurs when HMRC set-off (under VATA section 81(3) or some other procedure) a refund against any debt the taxpayer may owe HMRC. It also mentions that for the purpose of this section the meaning of ‘return’ is as defined by Paragraph 2, Schedule 11 to the VAT Act 1994.