The Chartered Institute of Taxation (CIOT) is calling on the government to amend unfair VAT rules, as rising interest rates on late payments place an increasing burden on businesses.
CIOT is pushing for the reinstatement of HMRC’s discretion to waive interest on underpaid VAT in cases where there is no actual tax loss to the Exchequer—a power that was removed when the new VAT interest regime took effect for VAT return periods starting on or after 1 January 2023.
The issue arises due to the unique mechanics of the VAT system, where a business may under-declare VAT that would ultimately be reclaimable by a third party, such as a customer. Under the previous system, HMRC had the flexibility to waive interest in such cases, ensuring fairness. However, under the current regime, interest is charged even when there is no net loss of tax.
Adding to concerns, the interest rate on late tax payments is set to rise by a further 1.5% in April, without a corresponding increase in interest on overpaid tax.
Richard Wild, CIOT’s Head of Tax Technical, commented:
“We do not believe this change was a deliberate decision by the previous government, but it is essential that this unfairness is addressed. The principle of commercial restitution should be reinstated to prevent businesses from being penalised in situations where no tax loss occurs.”
Info obtained here
