If you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC will usually repay you the difference by making a VAT repayment. HMRC will also usually repay you any VAT amounts you’ve overpaid.
If HMRC is late in paying you, you may be entitled to repayment interest on any VAT that you are owed. For accounting periods starting on or after 1 January 2023, repayment interest replaces the repayment supplement.
Calculating VAT repayment interest
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
When you’re not eligible for repayment interest
HMRC will not pay repayment interest if you have any outstanding VAT returns. It will be paid from the date that HMRC receives the last outstanding VAT return.
Start date for VAT repayment interest
When HMRC starts calculating repayment interest depends on whether we’re repaying an amount you’ve:
- already paid to HMRC
- not paid and is shown as credit owed to you on a VAT return or a claim
If you’ve already paid the VAT to HMRC
Repayment interest is calculated from the day after the later of these two dates:
- when you paid the VAT to HMRC
- the deadline for your accounting period
If you’ve not paid the VAT to HMRC
Repayment interest starts on the day after the later of these two dates:
- the deadline for your accounting period
- when you submitted the VAT return or claim
Exceptions to rules for start dates
If you’re claiming an amount, part of which is VAT paid to HMRC, and part of which is VAT you haven’t paid to HMRC, both rules for start dates can apply.
Repayment interest is worked out differently for payment on account customers. If they pay instalments that are more than they owe for a VAT accounting period, repayment interest on the overpaid amount starts from the date the VAT return was due.
Where HMRC ask you to pay a VAT security, if you do not pay it, you will not receive repayment interest during this period:
End date for VAT repayment interest
Repayment interest ends when HMRC repays the VAT to you or sets it off against a different VAT or tax amount that you owe them.
Repayment example where VAT has not been paid
Company Z has a VAT credit of £10,000 with repayment interest for 3 days
They use a monthly accounting period. The key dates are:
- 30 September – the company’s monthly accounting period ends
- 1 November – they submit their VAT return with a VAT credit of £10,000
- 7 November – is when their September VAT return is due
- 10 November – HMRC pays company Z £10,000
Company Z is due repayment interest on £10,000 for 3 days from 8 November 2023 until 10 November 2023 inclusive.
For this example, the Bank of England base rate is 1% making the repayment interest rate 0.5%.
Repayment interest for 3 days is £0.41.
(£10,000 x 0.5% x 3/365 days) = £0.41.
Repayment example where VAT has been paid
Company X has overpaid by £3,000 with repayment interest for 18 days
Company X uses a quarterly accounting period. The key dates are:
- 31 March – company X’s quarterly accounting period ends
- 7 May – is when their March VAT return is due
- 15 May – they submit their VAT return and pay VAT of £10,000
- 20 May – company X claims a repayment of £3,000 VAT
- 2 June – HMRC repay company X £3,000
Company X is due repayment interest of £3,000 for 18 days from 16 May 2023 until 2 June 2023 inclusive.
For this example, the Bank of England base rate is 3% making the repayment interest rate 2%.
Repayment interest for 18 days is £2.96.
(£3,000 x 2% x 18/365 days) = £2.96.
Help and support
Find further video examples in recorded webinar Overview of new VAT penalties and interest charges.
If you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC will usually repay you the difference by making a VAT repayment. HMRC will also usually repay you any VAT amounts you’ve overpaid.
If HMRC is late in paying you, you may be entitled to repayment interest on any VAT that you are owed. For accounting periods starting on or after 1 January 2023, repayment interest replaces the repayment supplement.
Calculating VAT repayment interest
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
When you’re not eligible for repayment interest
HMRC will not pay repayment interest if you have any outstanding VAT returns. It will be paid from the date that HMRC receives the last outstanding VAT return.
Start date for VAT repayment interest
When HMRC starts calculating repayment interest depends on whether we’re repaying an amount you’ve:
- already paid to HMRC
- not paid and is shown as credit owed to you on a VAT return or a claim
If you’ve already paid the VAT to HMRC
Repayment interest is calculated from the day after the later of these two dates:
- when you paid the VAT to HMRC
- the deadline for your accounting period
If you’ve not paid the VAT to HMRC
Repayment interest starts on the day after the later of these two dates:
- the deadline for your accounting period
- when you submitted the VAT return or claim
Exceptions to rules for start dates
If you’re claiming an amount, part of which is VAT paid to HMRC, and part of which is VAT you haven’t paid to HMRC, both rules for start dates can apply.
Repayment interest is worked out differently for payment on account customers. If they pay instalments that are more than they owe for a VAT accounting period, repayment interest on the overpaid amount starts from the date the VAT return was due.
Where HMRC ask you to pay a VAT security, if you do not pay it, you will not receive repayment interest during this period:
End date for VAT repayment interest
Repayment interest ends when HMRC repays the VAT to you or sets it off against a different VAT or tax amount that you owe them.
Repayment example where VAT has not been paid
Company Z has a VAT credit of £10,000 with repayment interest for 3 days
They use a monthly accounting period. The key dates are:
- 30 September – the company’s monthly accounting period ends
- 1 November – they submit their VAT return with a VAT credit of £10,000
- 7 November – is when their September VAT return is due
- 10 November – HMRC pays company Z £10,000
Company Z is due repayment interest on £10,000 for 3 days from 8 November 2023 until 10 November 2023 inclusive.
For this example, the Bank of England base rate is 1% making the repayment interest rate 0.5%.
Repayment interest for 3 days is £0.41.
(£10,000 x 0.5% x 3/365 days) = £0.41.
Repayment example where VAT has been paid
Company X has overpaid by £3,000 with repayment interest for 18 days
Company X uses a quarterly accounting period. The key dates are:
- 31 March – company X’s quarterly accounting period ends
- 7 May – is when their March VAT return is due
- 15 May – they submit their VAT return and pay VAT of £10,000
- 20 May – company X claims a repayment of £3,000 VAT
- 2 June – HMRC repay company X £3,000
Company X is due repayment interest of £3,000 for 18 days from 16 May 2023 until 2 June 2023 inclusive.
For this example, the Bank of England base rate is 3% making the repayment interest rate 2%.
Repayment interest for 18 days is £2.96.
(£3,000 x 2% x 18/365 days) = £2.96.
Help and support
Find further video examples in recorded webinar Overview of new VAT penalties and interest charges.
