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HMRC internal manual

VAT Statutory Interest Manual

Processes and procedures: notifying the taxpayer of the statutory interest decision

The taxpayer must be notified of the decision on the amount of statutory interest to be paid (or not) in respect of the amount reclaimed. The notification of the decision including the reason for the decision and the supporting law must be in writing. The taxpayer’s right of appeal must also be set out clearly in the notification, see VSIM7300.

The notification should also contain the following statement to ensure the taxpayer is aware of the direct tax implications of the statutory interest payment.

‘This statutory interest payment is chargeable to income tax or corporation tax as appropriate.

HMRC has not deducted any tax from the statutory interest payment. The payment will form part of your taxable income or profits and you are obliged by law to notify HMRC on your tax return or otherwise of the amount of interest you have received.

If you are an individual chargeable to income tax this payment will be taxable in the year you receive it.

Companies chargeable to corporation tax should include statutory interest payments as interest on a loan relationship. The period in which the interest will be taxed will, in general, follow the treatment of the interest in the accounts of the company.

The amount of income tax or corporation tax due will depend on your circumstances.’

Form VAT915 should then be completed and sent to the Accounting and Adjustments team to credit the statutory interest payment to the taxpayers VAT Mainframe Account.

However for an unregistered person a manual repayment is required. To make a manual repayment you should complete a form VAT971 and send it to the Manual Repayment Unit.