The Chartered Institute of Taxation (CIOT) is calling on the government to
address unfair tax rules as interest rates on late payments rise.
The CIOT is urging the government to reintroduce rules which enable HMRC to waive
interest on underpaid VAT when no actual tax loss to the Exchequer occurs.
This power was omitted from the new VAT interest regime which came into effect
for VAT return periods starting on or after 1 January 2023.
The exposure to interest where there is no tax loss is due to the unique
operation of the VAT regime.
The interest rate on late payment of tax is due to increase by a further 1.5% in
April, with no equivalent increase in interest on overpaid tax.
Richard Wild, CIOT's Head of Tax Technical, said:
'It is possible for a taxpayer to under-declare an amount of VAT due to HMRC,
in circumstances where that VAT is reclaimable by a third party, such as the
taxpayer's customer.
Under the previous interest regime the principle of commercial restitution
could be applied, providing HMRC with discretion not to charge interest in
these circumstances, because there had been no loss to the Exchequer.
Under the present system, HMRC no longer has statutory discretion to not
charge interest in these circumstances. So, interest is now being charged in
situations where there is no net loss of tax.
We do not understand this to be a deliberate decision on the previous
government's part, but it is vital that this unfairness is removed and
commercial restitution reinstated.'
Internet link: CIOT