CH140295 | Interest: liability to pay interest - no discretion

The law requires a person to pay the correct amount of tax due to HMRC by the due and payable date and HMRC charges interest when the person does not fulfil this obligation

Interest is charged to encourage prompt payment and recompense the Exchequer for the loss of use of taxes paid later than the statutory due date.

Liability to pay interest arises automatically and HMRC does not have any statutory discretion not to charge interest which is legally due.

Note: Under the previous VAT interest rules in VATA 1994, HMRC had powers to assess interest under Section 76 and Parliament provided HMRC with statutory discretion over whether or not to do so. HMRC exercised this discretion to not charge default interest under section 74 VATA where a taxpayer had under-declared an amount of VAT which would have been reclaimed as input tax by a third party. This policy (often referred to as commercial restitution) does not apply under the new FA09 interest rules, as HMRC do not have statutory discretion to not charge this interest when it is legally due.