Overpaid tax—interest and damages
Produced in partnership with Etienne Wong of Old Square Tax Chambers

The following Tax practice note produced in partnership with Etienne Wong of Old Square Tax Chambers provides comprehensive and up to date legal information covering:

  • Overpaid tax—interest and damages
  • Interest on overpaid tax—the statutory regimes
  • Interest on overpaid tax—restitution
  • Interest on overpaid tax—EU law
  • The Littlewoods case
  • Corporation tax on restitution interest
  • Damages for tax overpaid before 31 December 2020
  • Conditions under which there is a right to damages
  • Enforcement and quantum
  • Breach of EU law by a national court

Overpaid tax—interest and damages

This Practice Note is about:

  1. a taxpayer’s right to receive interest on repayments of overpaid tax, whether under a statutory regime, the common law (and specifically the law of restitution), or EU law (including retained EU law)

  2. the corporation tax charge on restitution interest, and

  3. for tax that was overpaid before 31 December 2020, EU law on whether overpaid tax may give rise to a right to damages

Interest on overpaid tax—the statutory regimes

HMRC has a statutory obligation to pay interest, known as repayment interest, when it repays overpaid income tax and capital gains tax. Repayment interest is calculated on a simple (not compound) basis at the higher of 0.5% or the Bank of England’s interest rate minus one. Repayment interest runs from the date on which the tax was paid to HMRC (or the date on which it was due and payable, if this is later) until the date of repayment.

Similar rules require HMRC to pay interest on repayments of corporation tax, with special provisions for companies paying corporation tax by instalments.

The rules on repayment interest in the context of VAT are, until 1 April 2022, in section 78 of the Value Added Tax Act 1994 (VATA 1994). They provide that where a taxable person has overpaid VAT, under-deducted input tax, or suffered a delay in receiving a VAT repayment due

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