VAT: increasing compensatory interest?

Article by Penny Hamilton, CIOT President 2002-2003. This article appeared in the December 2005 issue of Tax Adviser. To err is human, and the Commissioners of Customs & Excise (as they then were) demonstrated that they were as human as the rest of us when, in 1991, provision was mde for interest to be paid to taxpayers in certain cases of official error. That provision, which is now VATA 1994, is usually referred to be the commissioners as 'statutory interest' (as opposed to the interest they charge when a taxpayer gets it wrong, which they call 'default interest'). Statutory interest is simple interest and the rate is set by the Air Passenger Duty and Other Indirect Taxes (Interest Rate) Regulations 1998 at 1% below the average lending rates of the major retail banks (as opposed to default interest, which is 2.5% above that average rate). This rather measly rate can hardly be described as commercial, but indirect tax advisers should not despair. Their clients may be entitled to other remedies and it is important that they be aware of the more generous alternatives, one or more of which may be available. These are the repayment supplement, interest under VAT 1994 s84(8), and compound interest and/or damages where there has been a breach of European law.

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December 2005 by Penny Hamilton