Value Added Tax

Interest on mistakes made by HMRC

Produced by Tolley
  • 18 May 2022 14:03

The following Value Added Tax guidance note Produced 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
  • Applicable period
  • Recovery assessments
  • Interim remedy
  • Making a claim
  • Appeals
  • Repayment interest from 1 January 2023
  • Repayment start date for amounts paid to HMRC
  • More...

Interest on mistakes made by HMRC

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.

It is worth noting that there are plans to harmonise the interest rules for VAT to ensure that they follow similar rules to income tax self assessment. These rules will apply to VAT accounting periods starting on or after 1 January 2023. The legislation underpinning these changes is contained within Finance Act 2021 and more information on the changes can be found later in this guidance note.

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. The business has:

  1. 1)

    accounted for output tax incorrectly and as a result, has overpaid VAT and HMRC is required to repay the overpaid VAT

  2. 2)

    did not claim input tax that was entitled to and HMRC is required to repay this input VAT

  3. 3)

    paid another amount of tax to HMRC that should not have been accounted for as VAT

  4. 4)

    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 (1)–(3) above but excluding any interest due under this provision)

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