VSIM2300 - The law and legal powers: how is statutory interest claimed

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 format of an interest claim is relatively informal; all VATA s78 (10) requires is that a claim must be made in writing. However in view of the court of appeal judgement in the CIP (see below) a claim should specify which principal repayment claim it relates to and why interest is considered to be due.

VATA s78 (11) requires all claims for statutory interest to be made within four years of the end of the applicable period to which it relates. The applicable period is the period for which interest is paid and it always ends on the date HMRC authorise payment of the principal repayment claim, see VSIM6100. VATA s78(12) provides that all references to authorising payment also includes reference to set off by s81 (3) or otherwise.

For example, a repayment claim arising from an official error in respect of period 12/10 is authorised for payment on 31 October 2011. The taxpayer will have until 30 October 2015 in which to make a claim for statutory interest.

The Court of Appeal judgement in John Wilkins (Motor Engineers) and others, known as the Compound Interest Project (CIP) v HMRC was released on 30 July 2010. The Court of Appeal decided by a majority of 2-1 that nothing in law prevents a further claim for statutory interest after settlement of the initial claim, as long as the further claim is made within the statutory four year time limit and there is something new to say. The Supreme Court refused HMRC permission to appeal and so the decision is confirmed.

The substantive issue of whether or not compound interest is payable, and if so, at what rate has yet to be decided in continuing litigation.

See VSIM5200 for guidance on compound interest claims or parallel claims for restitution in the High Court.

VATA s78 (10)

VATA s78 (11)

VATA s78 (12)