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Default Interest – things you didn’t know!

24th Apr 2019
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Default interest is one of those ‘stealth’ taxes. It applies widely to VAT assessments and seems to be automatically assessed. VAT act 1994, s74 provides for an assessment for Default Interest, although the section merely calls it ‘interest.’

HMRC only assess default interest where it represents commercial restitution. (This is not a statutory restriction, but HMRC exercising their discretion.) This means that if there is no overall loss of tax, interest will not be charged. Of course, in some instances there will be doubt as to whether there is a loss of tax. HMRC guidance at VDIM3020 suggests that an assessing Officer should err in the taxpayer’s favour if there is any doubt.

S83(1)(q) contains the provision to appeal against the amount of interest assessed. But there is no right of appeal against HMRC’s decision to assess interest. This was the subject of discussion in the FTT case of G4S Corporate Services Ltd & G4S Investigations (UK) Ltd, see paras 17 and 33.

But there is no ‘reasonable excuse’ defence against default interest.

Interest can only be charged for 3 years, unlike an assessment to VAT which can be four years.

Default interest is not an allowable expense against income tax.

HMRC’s VAT default interest manual is here: https://www.gov.uk/hmrc-internal-manuals/vat-default-interest

The G4S decision is here: http://www.bailii.org/uk/cases/UKFTT/TC/2019/TC07081.html

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