VAEC4500 | Recovery assessments: Default interest for VAT under-declared on returns

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.

The procedural guidance in this manual only covers the VAT Mainframe and VISION processes. For guidance on the Making Tax Digital and ETMP processes for fully migrated customers, see VAEC0200 and the Making Tax Digital for VAT compliance toolkit.

This page concerns the charging of default interest when assessing VAT under-declared on returns, submitted on the basis of a court ruling since overturned in HMRC’s favour.

Such assessments are ‘normal’ assessments made under Section 73(1) or (2) VAT Act 1994. The legal powers for charging default interest on Section 73 assessments is in Section 74 VAT Act 1994. The power to assess a liability to interest arising under Section 74 is contained in Section 76.

The time limits in Section 77(2) and Section 74(3) apply to assessments for default interest.

Start date for interest

Under the provision of Section 74, interest on assessments is calculated from the ‘reckonable date’.

For Section 73 assessments this date will depend on whether the return subject to assessment is a payment return or a repayment return. For payment returns it is one day after the due date of the return. For repayment returns it is seven days after the repayment was authorised.

End date for interest

The end date is the calculation date of the assessment.

Full guidance on default interest, and the circumstances in which it may be appropriate, see VCP10890.