VSIM5100 - What interest rate is payable: how the interest rate is determined

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.

Statutory interest is paid at the rate applicable under section 197 FA 1996. It is a simple interest rate, calculated daily (for every day including Sundays), as set out in The Air Passenger Duty and Other Indirect Taxes (Interest rate) Regulations 1998 (SI 1998/1461).

The Regulations (as amended over time) make provision for the interest rate to be calculated at 1% less than the Bank of England rate (base rate), as determined by the most recent meeting of the Monetary Policy Committee of the Bank of England.

However, if the base rate falls below 1.5%, the statutory interest rate is set at a minimum rate of 0.5%. This ensures the rate will never fall to zero.

s78(3), VATA

s197, FA 1996
SI 1998/1461 as amended