VAT: New guidance on repayment interest

HMRC has published new guidance on repayment interest – in cases where HMRC is late in settling a repayment claim for overpaid VAT.

If HMRC is late in paying an amount representing a repayment, ie; when a return shows more input tax than output tax, or a claim is made for VAT previously overpaid, a business may be entitled to repayment interest on the VAT that it is owed. From 1 January 2023 repayment interest replaced the repayment supplement.

Amount of interest

Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.

Start date

VAT already paid to HMRC

The day after the later of these two dates:

• when the VAT was paid to HMRC
• the payment deadline for your accounting period

VAT not paid to HMRC

The day after the later of these two dates:

• the payment deadline for the accounting period
• when the VAT return or claim was submitted

End date

Repayment interest ends when HMRC either repays the VAT or sets it off against a different VAT or tax amount that is deemed to be owed.

Notes

• any retrospective claims are subject to the unjust enrichment rules
• repayment interest is not due if there are any outstanding VAT returns
• HMRC will not pay interest on early payments of VAT
• if payment on account businesses pay instalments that exceed VAT owed, repayment interest begins on the date the return was due
• in cases where HMRC demand a VAT security, and it is not paid, no repayment interest will be due