VAT - interest rate harmonisation
The measure
Legislation will be introduced to create a harmonised interest regime across the majority of taxes and duties administered by HMRC. The measure provides for the automatic setting and implementation of interest rate changes and will align the rates payable by HMRC.
Under the revised provisions, interest will be charged from the date the tax was due to be paid to HMRC until the date it is paid. Conversely, HMRC will pay interest on repayments from the date the tax was due to be paid or, if later, the date the payment was received, to the date the repayment is made.
The interest rate charged and paid by HMRC will be based around the Bank of England base rate and be calculated on a simple basis.
Who will be affected?
All persons or businesses registered for VAT.
When?
The changes will be aligned by Treasury Order and will have effect shortly after the date that Finance Bill 2009 receives Royal Assent.
Prior to the Budget rumours had circulated that HMRC were about to retrospectively remove the right of taxpayers to claim interest on a compound basis on VAT repayments. These rumours have proved unfounded although it is now clear that HMRC intend to pay only simple interest on VAT repayments in future.
