VDIM9080 - Circumstances affecting default interest: Pre-repayment credibility queries

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.

When verification of a pre-repayment credibility query shows an adjustment is needed, you may only charge interest if a net payment is found to be due and an assessment has been made under VAT Act 1994 Section 73, or recovery assessment legislation.

All assessments under s73 carry a liability to interest under s74, subject to commercial restitution considerations, see VDIM3000+.

Repayment Return remains a Repayment Return

In cases where a lesser repayment has been found to be due, there is no assessed tax to form the basis of an interest charge. In fact we have simply denied a proportion of the VAT credit claimed.

For more information on returns which are the subject of credibility queries, see VAEC8300+.

Repayment Return becomes a ‘Payment Due’ Return

If the adjustment turns the tax period from a repayment return period into a ‘tax due’ return period then default interest will apply, subject to commercial restitution considerations, to the ‘tax due’ amount. This is the amount of VAT which has been under declared and is subject to an assessment under s73.

Note: You cannot use a VAT641 to amend a pre-credibility return.

If you adjust a pre-credibility query you must manually notify the trader of the adjustment using the appropriate SEES letter. Use LC13 for a reduction of the VAT credit, or LC14 for zeroing of the VAT credit and an amount becoming due to HMRC.

Calculating and notifying the default Interest charge

Default interest is not automatically calculated in pre-credibility situations, as no VAT641 is used. You should therefore manually calculate, and notify, the interest to the trader.

To calculate default interest manually you should use the interest calculator on the VISION main menu. Further advice is available at VDIM9060. To notify the interest you should use SEES letter LC14a.