VSIM4100 - Amount on which statutory interest is calculated: introduction

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.

Having established that the overpayment was due to official error by HMRC, it is necessary to confirm the amount on which Statutory Interest (SI) should be calculated.

Statutory interest should be calculated on the gross amount claimed after allowing for normal netting of input tax and output tax in the same accounting period, including set off, required under sections 80(2A) and 81(3A) VATA (any unpaid liability arising out of the same official error). If any of the resulting credit is to be set off against other unpaid liabilities, that credit must also be included in the amount on which interest is calculated. See VSIM4600 for an explanation of the set off provisions.

Support for this interpretation can be found in the Tribunal decision of North East Media Development Trust (1995) VATDR, where it was decided that the interest should be computed upon an amount equal to the input tax net of the output tax underpaid.

VATA s78