CH140100 - Interest: Overview

This guidance explains the interest rules introduced by Finance Act 2009. These interest rules do not yet apply to all taxes. You must always check which taxes the rules apply to and the date from which they apply. When they apply, they replace any previous interest provisions.

Eventually, the interest provisions will apply to all taxes and duties, other than customs duty. However, the interest provisions currently only apply to certain taxes and any associated penalties. There is a list of these taxes at CH140160.

The law requires a person to pay the correct amount due under an enactment to HMRC by the due and payable date.

Interest is recompense for the loss of use of money over time. It is not a penalty.

To compensate either party for the loss of use of money, HMRC

  • charges interest when a person pays late - this is known as late payment interest, and
  • pays interest on overpayments and repayments - this is known as repayment interest.

Late payment interest and repayment interest are calculated on a simple, not compound, basis. This means that interest is only calculated on the amount of the tax or penalty (late payment interest only), and not on interest that has already been charged or accrued.

There are general rules to calculate late payment interest and repayment interest, and special provisions that apply in particular circumstances. You must always check whether the general rule is amended by a special provision for the situation that you are dealing with.

Late payment interest

The general rule is that late payment interest runs from the late payment interest start date until the late payment interest end date.

In most cases the late payment interest start date is the date on which the amount is due and payable.

In most cases the late payment interest end date is the date when the amount is paid or a set off takes place – see CH140200 . There can be multiple late payment interest end dates where an amount is paid by instalments.

CH140220 explains how to calculate the number of days from the start date to the end date.

There are special provisions that apply in particular circumstances that change the late payment interest start date and identify the amount on which interest is charged – see CH142000.

Repayment interest

The general rule is that repayment interest runs from the repayment interest start date until the repayment interest end date.

The general rule defines the repayment interest start date as follows.

(1) Rule 1: payment of amounts which were paid to HMRC

When HMRC repays an amount that a person has paid to HMRC, the repayment interest start date is the later of

  • the date when the amount was paid, and
  • the date when the amount being repaid was due and payable to HMRC.

Rule 1 applies to all taxes to which the FA 2009 interest provisions apply

(2) Rule 2: Payment of amounts on a return or claim

Where an amount has not been paid to HMRC but becomes payable because of a return or claim, the repayment interest start date is the later of

  • the date when the return was required to be filed, or the claim to be made, and
  • the date when the return was actually filed, or the claim actually made.

The only tax regime for which rule 2 currently applies is VAT from [01/01/2023 for Prescribed Accounting Periods starting on or after 01/01/2023].

The repayment interest start date depends on whether the VAT return position for a prescribed accounting period was for a net ‘payment’ or a net ‘repayment’.

Where the position for the prescribed accounting period was for a net payment and this changes to a net repayment (VAT credit) as a result of a correction or claim, then both rules 1 and 2 will apply. Repayment interest will be payable on both:

(a) the amount which was paid to HMRC in respect of the prescribed accounting period

and

(b) the net VAT credit that had not been claimed for that period.

This scenario can arise where:

  • a claim is made under Section 80 VATA 1994 where a customer has over accounted for output tax on their payment VAT return,
  • a claim is made under Regulation 29 of VAT Regulations 1995 where a customer has deducted less input tax than they were entitled to on their payment VAT return.

The repayment interest end date is the date when the amount is repaid or set off against another liability.

There are special provisions that change the repayment interest start date and provide specific rules for VAT in particular circumstances – see CH146200

There are no special provisions that change the repayment interest end date.

FA09/S101

FA09/S102
FA09/SCH53
FA09/SCH54 & SCH54A