VDIM4040 - Calculating liability: Recovery 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.

If an assessment is made under Section 80(4A) of the VAT Act (recovery of a payment under Section 80) or Section 78A of the VAT Act (recovery of statutory interest) interest is only due if the assessment is not paid within 30 days of its issue.

The start date for the calculation of interest will be the issue date of the assessment. The computer will not do this automatically, and in such cases you will need to set the interest inhibit to 1 on the VAT 641/642.

If the taxpayer fails to pay the tax amount you will also need to make a manual adjustment to the interest using the VAT 663 procedures, see VDIM6000. As the VAT 663 will not generate a notification to the taxpayer, a manual assessment notification of the interest will be needed.

An interest assessment relating to these types of recovery assessments is limited to a maximum period of two years ending with the date the interest assessment is issued. Further interest assessments may also be issued until the recovery assessment is paid in full (section 78A VATA applies). The time limits in section 77 VATA do not apply to these particular interest assessments although timing will affect the two year period.

In circumstances where a ‘protective’ recovery assessment has been issued pending further litigation, the taxpayer will have been advised to expect to pay interest with any tax and statutory interest that has to be paid back to HMRC. The amount of interest will not have been known at the time. Due to the two year limit described above it will be necessary to periodically issue interest assessments to protect the interest position and inform the taxpayer of the amount accruing. Payment of the interest will not be enforced pending the outcome of the litigation.

If an assessment is made under Section 73(2) of the VAT Act (recovery of a VAT credit) normal rules apply. The start date for interest will therefore be the seventh day after the day on which written instruction was given to release the credit. Interest should not be inhibited on the VAT 641/642. However, the output documents must be suppressed because the interest charge will be incorrect as the computer will have used the incorrect start date. A manual adjustment to reduce the span of interest will be needed using the VAT 663 procedures, see VDIM6000, and a manual assessment notification will need to be issued to the taxpayer.

See VDIM5040 for end dates.