VAEC4300 - Recovery assessments: Default interest on Section 80(4A) and Section 78A assessments

This guidance deals with interest matters in respect of prescribed accounting periods starting on or before 31 December 2022. Interest matters with effect from 01 January 2023 are dealt with under Finance Act 2009.

Please see Compliance Handbook page CH140000 onwards to find the new interest rules guidance.

The procedural guidance in this manual only covers the VAT Mainframe and VISION processes. For guidance on the Making Tax Digital and ETMP processes for fully migrated customers, see VAEC0200 and the Making Tax Digital for VAT compliance toolkit.

Section 74 VAT Act 1994 allows HMRC to charge interest on VAT recovered or recoverable by assessment.

Period for which interest is charged

Under Section 78A(7) each assessment for default interest on recovery of section 80 payments and statutory interest must be limited to a maximum period of 2 years ending with the date the interest assessment is issued. Further interest assessments may still be made until the recovery assessment is paid in full.

This contrasts with the maximum period of 3 years for default interest on assessments made under section 73. In these cases the three year maximum period precedes the VAT assessment not the interest assessment. Default interest will only become due if the recovery assessment remains unpaid after a period of 30 days. If it is paid within 30 days no interest should be charged.

Start and end date for interest

If payment is made later than 30 days after notification, interest will be due from the ‘reckonable date’. For assessments to recover Section 80 payments and statutory interest this is the date of notification of the assessment. The end date is the date of payment of the recovery assessment.

For full guidance on default interest, and recovery assessments see VDIM4040.