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

New guidance on repayment interest