2 Mins
One of the quieter changes ushered in with the reform of VAT Return Penalties and Interest from 1 January 2023 was the introduction – for the first time since VAT was introduced over 50 years ago – of automatic Repayment Interest (‘RPI’) for delayed VAT payments due back to taxpayers. Previously a ‘repayment supplement’ could fall due if HMRC took longer than appropriate to refund VAT return reclaims (but not disclosures).
The measure finally brings an element of fairness to HMRC’s approach to settlement of VAT liabilities; you’d expect most banks to charge interest of loans or lending but also to pay credit interest where they have your money. The new regime now automatically calculates interest at Base Rate minus 1% (with a minimum of 0.5%) – so from 31 May 2023 3.5% RPI applies. RPI will be repaid to taxpayers on any VAT due to be repaid to the taxpayer, for periods starting on or after 1 January 2023, from the day after the due date or the date of submission (whichever is later) until the day HMRC pays the repayment.
This fairer RPI system will be particularly helpful in current periods where taxpayers make VAT return claims or disclosures, and these are held up by HMRC delays which are currently being widely experienced – particularly across error correction disclosures.
Prior to the change, to get any interest from HMRC, taxpayers had to show that they had suffered a delay in respect of repayment return claims.
Periods prior to 1 January 2023 will not be subject to the automatic payment of RPI. However, where taxpayers have waited ‘too long’ for their repayment, and that delay is attributable to HMRC, it is possible to proactively seek repayment of interest ‘in certain cases of Official Error’. (para 78, VAT Act 1994). So, any taxpayer who suffers a significant HMRC delay in settlement of a disclosure reclaim for periods before 1 January 2023 (retrospectively up to 4 years ago) should make a formal claim for interest to HMRC.
As noted, given apparent resourcing issues, delays in repayment of disclosure claims at HMRC have been fairly widespread in recent years and we’ve been successful in claiming significant historic interest for clients under the old regime.
Given that RPI will now be being calculated automatically for more recent periods, it is to be hoped HMRC will speed up their repayment processes generally, to ensure that RPI cost to the Exchequer is minimised and cash promptly flows back to hard-pressed taxpayers.