Interest on mistakes made by HMRC

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Interest on mistakes made by HMRC
  • When will HMRC pay interest?
  • Calculating the interest
  • Making a claim
  • Appeals

This guidance note provides an overview of the situations when HMRC may be required to pay a business interest due to the fact that it has made an official error which has resulted in the business paying too much VAT.

The Government published the draft Finance Bill 2018–19 , cl 32 and Sch 14, which contained provisions to replace repayment interest with a single interest that covers VAT, corporate tax and income tax self assessment. Under the proposed changes, interest will not be payable in certain circumstances such as where HMRC is looking at the return, where returns are outstanding or where a person has been asked to provide information or security and this remains outstanding. However when Finance (No. 3) Bill   was published this provision was no longer contained in the Bill and it would appear that the government has delayed implementing this provision for the moment.

When will HMRC pay interest?

If HMRC makes one of the following types of errors, it will be required to pay the business interest on the amount.

VATA 1994, ss 79, 78; SI 1995/2518, regs 198, 199

The business has:

  • i)accounted for output tax incorrectly and as a result, has overpaid VAT and HMRC is required to repay the overpaid VAT
  • ii)did not claim input tax that was entitled to and HMRC is required to repay this input VAT
  • iii)paid another amount of tax to HMRC that should not have been accounted for as VAT
  • iv)suffered delay in receiving payment of an amount due from HMRC in connection with VAT (including, for example, a refund under the DIY builder’s scheme or under (i)–(iii) above but excluding any interest due under this provision)

HMRC is also required to pay

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