Value Added Tax Act 1994 section 81

Interest given by way of credit and set-off of credits

Section 81 deals with how HMRC handles interest payments owed to taxpayers and the setting off of amounts owed between HMRC and taxpayers, including special rules where insolvency is involved.

• Any interest HMRC owes to a person under the VAT Act is treated as a VAT credit and handled through the normal VAT return mechanism, but this treatment does not affect the person's underlying entitlement to interest or the amount of interest due.
• Where HMRC owes an amount to a person who also has an outstanding liability for VAT, penalties, interest or surcharges, HMRC will automatically set off (net) the two amounts against each other, discharging both obligations to the extent of the set-off.
• If a repayment arises because of a past mistake about VAT liabilities, and that mistake meant HMRC failed to assess or collect a sum the person owed, HMRC can set off the repayment against that uncollected sum even if the normal time limit for recovering it has expired.
• Where a person has entered an insolvency procedure, HMRC cannot set off post-insolvency credits against pre-insolvency debts (or debts arising after insolvency that relate to pre-insolvency business activity), protecting the interests of other creditors in the insolvency.