VDIM12040 - Reviews and appeals: Reasons why a taxpayer might appeal

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.

This section lists some of the reasons why a taxpayer might disagree a liability to an interest charge or appeal against an interest amount, and the action that is appropriate:

Officer’s Assessment

When an officer’s assessment is appealed against, the liability to interest will continue if the tax remains unpaid. You should tell the taxpayer this at the earliest possible date. You can exclude the tax amount from interest pending the outcome of the appeal by completing the “Tax. Excl. From Interest” field on the VAT673.

This will make sure the taxpayer is not charged any interest on the amount whilst the appeal is being considered (although it will still accrue). The VAT673 causes the original interest to be removed from the OA screen once the indicator has been set. There is no way of knowing the original amount if the ledger does not go back far enough, unless a copy of the OA is on Electronic Folder (EF).

When lifted the VAT675 will re-instate the original interest (or recalculate it taking into account any amendments to the OA) and calculate any further interest that has become due.

Imposition of interest is “unfair”

Taxpayers may point out their previous good compliance history, or that they have made changes to their business systems to make sure that such “errors” will not happen again. As interest is charged as commercial restitution, you should maintain the interest as these arguments do not affect the position.

No revenue loss

Where taxpayers can demonstrate that the imposition of interest would not represent commercial restitution, see VDIM3010, interest should be withdrawn.

Assessment cleared on earlier date

Taxpayers may argue that they have settled the assessment on a date which differs from the end date used in the interest calculation. You must check the OA Interest Calculation Record (ICR), see VDIM5100, against the ledger to make sure the interest has been charged correctly.

Imposition of further interest is incorrect

As explained in VDIM5080 further interest will be calculated if the taxpayer fails to pay the interest bearing tax within 30 days of the issue date of the assessment. The payment date must therefore be confirmed.

Departmental delay in processing assessment

If there is a delay in issuing assessments the amount of interest will increase. It is therefore most important that assessments are processed as quickly as possible. If the delay is unreasonable, unnecessary or due to Departmental error, you should consider amending the span of interest to reflect the extent of the delay, using the VAT663 procedures see VDIM6000. Unreasonable delay is difficult to interpret but you should take the following factors into account

• the time taken by the local office to process a form
• the procedures involved before processing
• did the taxpayer fully comply and supply full details at the right time.

Over declarations not taken into account

The law does not allow interest to be paid on over declarations, however some may be taken into account depending on individual circumstances, see VDIM4030.

Process to follow

The taxpayer should be told in writing that while their appeal is being reviewed, calculation of interest will be suspended on the amount, and that once the review is completed interest will be re-calculated on the amount outstanding.

Once the appeal is completed a VAT675 and a VAT647 will need to be input, this will cause interest to be re-calculated on the amount. Should the appeal be unsuccessful then any outstanding interest must be paid in full. If the assessment is reduced, interest must still be paid but only on the reduced amount.

Guidance on setting and lifting the appeals indicator including completion of the VAT673, VAT674 and VAT675 can be obtained by contacting the Indirect Tax Systems mailbox. For guidance on the completion of the VAT647 see VDIM12050.