HMRC to replace repayment supplement with 0.5% interest

HMRC will pay 0.5% annual interest on delayed VAT claims from April 2022. But the end of the repayment supplement scheme will be a bigger loss.

If HMRC delays repaying a VAT return claim by more than 30 days (plus additional days to give it a reasonable length of time to make enquiries) then they are liable for a repayment supplement this means you will receive 5% of the repayment amount or £50, whichever is greater.

There is no supplement paid, however, if the claim is significantly adjusted because of errors made on the return. The government’s intention is that the repayment supplement scheme will be scrapped for VAT periods beginning on or after 1 April 2022.

Interest concession

A recent amendment to Finance Bill 2021 (Amendment 19) means that HMRC will pay interest which currently stands ay 0.5% if it delays a repayment VAT return to check the figures – effective for periods beginning on or after 1 April 2022.

This is great news, you might think, but what is the bottom-line benefit to a business? And is this a fair trade-in for the loss of the repayment supplement scheme?

Example

If a company purchased a big piece of machinery and submitted a repayment VAT return for £200,000 mainly due to input tax claimed on the machinery.

The return was submitted on time but due to delays in processing caused by the HMRC reviewing officer, it was not repaid for four months. With the repayment supplement regime, the company will currently get £10,000 (£200,000 x 5%) but only £250 interest after April 2022.

The annual interest rate paid by HMRC under the new regime will be 0.5%, assuming the existing rate is unchanged. (£200,000 x 0.5% x 3months/12months).

Interest on errors

If a company were to accidently forget to claim input tax against new machinery and realised their error 12 months later when preparing year-end accounts.  Then the following procedure would need to be applied.

A voluntary disclosure would be required for submission to HMRC to correct the error however, this would not qualify for any interest payment from HMRC at this moment in time, even though the taxpayer has supported the government’s working capital for a year.

This will change from April 2022 as part of the government’s ‘interest harmonisation’ strategy, and will bring VAT into line with other taxes. But the annual rate of 0.5% will still be applied.

Summary

The proposed abolition of the repayment supplement scheme next year will be a big blow to taxpayers who suffer from unnecessary HMRC delays.

As well as the financial cost of a delayed VAT repayment, which an interest refund is designed to compensate, there are many other costs incurred by a business chasing a repayment, as we all know: professional fees, the cost of time delays waiting for HMRC to answer the phone, telephone bills etc.

HMRC officers have a bigger incentive to get cracking with an enquiry if a big 5% repayment supplement will be paid from the treasury coffers (a black mark against the officer), compared to a miserly 0.5% interest.

It is beneficial for companies to have their VAT returns prepared in time and as accurately as possible, this helps minimise any delays on the VAT submission. 

4 Eyes Ltd can provide a professional advisory service to ensure your VAT returns are correct and can file your VAT returns on your behalf in a timely fashion