What Interest Rates Apply for late VAT Payment to HMRC?

HMRC interest on either VAT arrears or overpaid VAT is charged at 2.75%. Following a 30-day period, further interest is charged on the VAT due from the date of the notice for a period of up to two years.

In what Situations will Interest be Charged?

  • If you either report less VAT than you have charged, or claim more than you have paid.
  • If you pay a ‘VAT notice of assessment of tax’ which HMRC later discovers is too low.
  • If you inform HMRC that more is owed them due to a mistake on your return.

Is Late Payment Interest tax Deductible?

HMRC prohibits any deduction of interest charges when working out your taxable profits

Can I Claim if HMRC has Made a Mistake Themselves?

If you’ve repaid too much because of your own error, you will be unlikely to get it repaid but, where HMRC has clearly made an error, 0.5% interest is claimable for the whole period from when the tax was overpaid or reclaimed.

Defaults and Surcharges

When either your VAT return or full payment for VAT Due isn’t received by the deadline, HMRC records a default. If you default, you will likely enter what is called a 12-month surcharge period during which further default will extend this for an additional year. The term ‘surcharge’ refers to a possible payment that would be levied on top of the VAT already owed. If you would like to assess the current figures for VAT surcharge penalties, please refer to HMRC’s website here.

Read more about VAT

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