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HMRC internal manual

VAT Statutory Interest Manual

Processes and procedures: interest following HMRC loss at tribunal

In addition to section 78 VATA there is a further provision within the VAT Act 1994 which requires HMRC to pay interest in specific circumstances.

Prior to 1 April 2009, the further provision could be found in section 84 (8) VATA which required interest to be paid where a Tribunal determined certain appeals in the appellant’s favour. The Tribunal however had the discretion to set the rate of interest and it was possible for an appellant to receive both interest and repayment supplement in addition to the principal sum repaid.

Section 84(8) was repealed and replaced by Section 85A with effect from 1 April 2009. There may however be circumstances where section 84(8) will still apply; these will be rare but any claims under this provision should be referred to Tax Administration, Litigation and Advice (TALA), see VSIM1400, for advice. Section 85A still requires HMRC to pay interest (no claim is necessary from the successful appellant) following an appeal loss resulting in an amount to be paid or repaid to the appellant, but has removed the Tribunal’s discretion to set the rate. (It also provides for interest awarded to HMRC.) The rate of interest is the rate set by section 197 Finance Act 1996; it is therefore the same as that paid under section 78. This also applies to s.85 agreements because like consequences ensue as if the tribunal determined the appeal.

Section 85A(5) provides that nothing awarded by the Tribunal requires HMRC to pay interest on any amount which is increased by a Repayment Supplement payable under section 79 VATA nor on the Repayment Supplement itself (the same as section 78 (2).

The start date for interest under section 85A is the date on which the amount to be paid or repaid was originally paid to HMRC by the appellant. In the case of input tax, the start date would be the date the relevant return was received or if not established the due date for that accounting period. The end date will be the date the payment or repayment is authorised.

The payment of interest is governed therefore by two separate and distinct legal provisions; sections 78 and 85A VATA. It is section 78 that is appropriate to the majority of claims unless there has been a relevant decision of a tribunal. Where there has been an appeal to the First Tier Tribunal payment of interest under section 85A is mandatory and therefore takes precedence over section 78.

VATA s 78

VATA s 84(8) (repealed)

VATA s 85A