VSIM5200 - What interest rate is payable: simple versus compound interest

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.

As explained in VSIM5100, the rate prescribed in Regulations is a simple interest rate.

From the early 2000’s, various legal challenges were made to this position, both via Tribunal appeals and by challenges in the High Court.

In 2017, the UK Supreme Court delivered a unanimous judgment in Littlewoods Ltd and Others [2017] UKSC 70, ruling that the statutory interest paid to the claimants was adequate and that it isn’t necessary for compound interest to be paid.

After the judgment, HMRC published Revenue and Customs Brief 5/2017 setting out that this brought the issue to a close.