Paying VAT by cheque – default interest
HMRC notice 700/43 entitled ‘Default Interest’ has been updated to reflect HMRC’s changed policy concerning cheque payments. These are now only treated as received when cleared funds reach HMRC’s bank account. Businesses that have been charged default interest and plan to pay by cheque will need to allow enough time for the payment to reach HMRC and to clear into HMRC’s bank account by the payment due date.
The rest of the Notice explains how default interest works and when it is charged. The notice also provides information on how taxpayers can appeal an interest calculation by writing to HMRC, asking for a review or appealing to the Tribunal.
Default interest is charged where VAT has been underdeclared or overclaimed, from the time the amount should have been paid to the time it is assessed in order to provide ‘commercial restitution’ to HMRC.
Default interest will not usually be charged where a business has not had use of the VAT for a period of time, for example where an underdeclared amount of VAT would have been immediately reclaimable as input tax by a third party.