Finance Act 1985

Interest, surcharges and supplements

18 Interest on tax etc. recovered or recoverable by assessment

(1) Subject to section 21(6) below, where an assessment is made under any provision of paragraph 4 of Schedule 7 to the principal Act and, in the case of an assessment under subparagraph (1) of that paragraph, at least one of the following conditions is fulfilled, namely,—

(a) the assessment relates to a prescribed accounting period in respect of which either—

(i) a return has previously been made, or

(ii) an earlier assessment has already been notified to the person concerned,

(b) the assessment relates to a prescribed accounting period which exceeds three months and begins on the date with effect from which the person concerned was, or was required to be. registered,

(c) the assessment relates to a prescribed accounting period at the beginning of which the person concerned was, but should no longer have been, exempted from registration under paragraph l1(1)(a) of Schedule 1 to the principal Act,

the tax or other amount assessed shall carry interest, in accordance with subsection (4) or subsection (5) below, at the prescribed rate until payment.

(2) In any case where—

(a) a person fails to comply with paragraph 3 or paragraph 4 of Schedule 1 to the principal Act (notification of liability to registration) or, being a person exempted from registration under sub-paragraph (1)(a) of paragraph 11 of that Schedule, fails to comply with sub-paragraph (2) of that paragraph (notice of circumstances affecting entitlement to exemption), and

(b) the Commissioners, rather than assessing the amount of tax due, require him to make a return for the period beginning on the date with effect from which he was required to be registered or, as the case may be, on which it appears to the Commissioners that he should no longer have been exempt from registration and ending on a date specified by the Commissioners, and

(c) that period exceeds three months, and

(d) the tax due for that period is paid without the need for an assessment. that tax shall carry interest, in accordance with subsection (4) or subsection (5) below, at the prescribed rate until payment.

(3) If, in a case where subsection (2) above does not apply,—

(a) the circumstances are such that an assessment falling within subsection (1) above could have been made, but

(b) before such an assessment was made the tax due or other amount concerned was paid (so that no such assessment was necessary),

that tax or other amount shall carry interest, in accordance with subsection (4) or subsection (5) below, at the prescribed rate until the date on which it was paid.

(4) Where the amount assessed or paid as mentioned in any of subsections (1) to (3) above relates to a particular prescribed accounting period which does not exceed three months, interest under this section shall run on the whole of that amount from the reckonable date.

(5) Where subsection (4) above does not apply, the Commissioners shall, to the best of their judgment, attribute different parts of the amount assessed or paid to different parts of the period to which that amount relates; and interest under this section on the part of an amount which is attributed to a particular part of a period shall run from the date which, if that part were a prescribed accounting period, would be the reckonable date.

(6) Where an unauthorised person, as defined in section 15(2) above, issues an invoice showing an amount as being tax or as including an amount attributable to tax, the amount which is shown as tax or, as the case may be, is to be taken as representing tax shall carry interest at the prescribed rate from the date of the invoice until payment.

(7) The references in subsections (4) and (5) above to the reckonable date shall be construed as follows—

(a) where the amount assessed or paid is such an amount as is referred to in sub-paragraph (2)(a) or sub-paragraph (2)(b) of paragraph 4 of Schedule 7 to the principal Act (incorrect repayment of tax or payment in respect of excess credit), the reckonable date is the seventh day after the day on which a written instruction was issued by the Commissioners directing the making of the payment of the amount which ought not to have been repaid or paid to the person concerned; and

(b) in all other cases the reckonable date is the latest date on which (in accordance with regulations under the principal Act) a return is required to be made for the prescribed accounting period to which the amount assessed or paid relates ; and

(c) in the case of an amount assessed under paragraph 4(6) of Schedule 7 to the principal Act (assessments in respect of goods which cannot be accounted for) the sum assessed shall be taken for the purposes of paragraph (b) above to relate to the period for which the assessment was made;

and interest under this section shall run from the reckonable date even if that date is a non-business day, within the meaning of section 92 of the [1882 c. 61.] Bills of Exchange Act 1882.

(8) In this section " the prescribed rate " means such rate as may be prescribed by order made by the Treasury; and such an order—

(a) may prescribe different rates for different purposes;

(b) shall apply to interest for periods beginning on or after the date when the order is expressed to come into force, whether or not interest runs from before that date; and

(c) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of the Commons House of Parliament.

(9) Interest under this section shall be paid without any deduction of income tax.

(10) This section shall come into operation on such day as the Treasury may by order made by statutory instrument appoint and any reference in this section to a prescribed accounting period is a reference to a period which begins on or after the day so appointed.

19 The default surcharge

(1) If, by the last day on which a taxable person is required in accordance with regulations under the principal Act to furnish a return for a prescribed accounting period, being a day falling on or after the day appointed under subsection (10) below,—

(a) the Commissioners have not received that return, or

(b) the Commissioners have received that return but have not received the amount of tax shown on the return as payable by him in respect of that period,

then that person shall be regarded for the purposes of this section as being in default in respect of that period.

(2) Subject to subsections (8) and (9) below, subsection (4) below applies in any case where—

(a) a taxable person is in default in respect of any two prescribed accounting periods; and

(b) the last day of the later one of those periods falls on or before the first anniversary of the last day of the earlier one ; and

(c) the Commissioners serve notice on the taxable person (in this section referred to as a " surcharge liability notice ") specifying as a surcharge period for the purposes of this section a period ending on the first anniversary of the last day of the later period referred to in paragraph (b) above and beginning, subject to subsection (3) below, on the date of the notice.

(3) If a surcharge liability notice is served by reason of defaults in respect of two prescribed accounting periods and the second of those periods ends at or before the expiry of an existing surcharge period already notified to the taxable person concerned, the surcharge period specified in that notice shall be expressed as a continuation of the existing surcharge period and, accordingly, for the purposes of this section, that existing period and its extension shall be regarded as a single surcharge period.

(4) Subject to subsections (6) to (9) below, if a taxable person on whom a surcharge liability notice has been served is in default in respect of a prescribed accounting period ending within the surcharge period specified in (or extended by) that notice, he shall be liable to a surcharge equal to whichever is the greater of—

(a) the specified percentage of his outstanding tax for that period; and

(b) £30;

and the reference in paragraph (a) above to a person's outstanding tax for a prescribed accounting period is a reference to so much of the tax for which he is liable in respect of that period as has not been paid by the last day on which he is required (as mentioned in subsection (1) above) to make a return for that period.

(5) Subject to subsections (6) to (9) below, the specified percentage referred to in subsection (4) (a) above shall be determined in relation to a prescribed accounting period by reference to the number of such periods in respect of which the taxable person is in default during the surcharge period, so that,—

(a) in relation to the first such prescribed accounting period, the specified percentage is 5 per cent.;

(b) in relation to the second such period, the specified percentage is 10 per cent.; and

(c) in relation to each subsequent such period the specified percentage is increased by a further 5 per cent, up to a maximum of 30 per cent, for the sixth and any later period.

(6) If a person who, apart from this subsection, would be liable to a surcharge under subsection (4) above satisfies the Commissioners or, on appeal, a value added tax tribunal that, in the case of a default which is material to the surcharge,—

(a) the return or, as the case may be, the tax shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or

(b) there is a reasonable excuse for the return or tax not having been so despatched,

he shall not be liable to the surcharge and for the purposes of the preceding provisions of this section he shall be treated as not having been in default in respect of the prescribed accounting period in question (and, accordingly, any surcharge liability notice the service of which depended upon that default shall be deemed not to have been served).

(7) For the purposes of subsection (6) above, a default is material to a surcharge if—

(a) it is the default which, by virtue of subsection (4) above, gives rise to the surcharge ; or

(b) it is a default which was taken into account in the service of the surcharge liability notice upon which the surcharge depends and the person concerned has not previously been liable to a surcharge in respect of a prescribed accounting period ending within the surcharge period specified in or extended by that notice.

(8) In any case where—

(a) the conduct by virtue of which a person is in default in respect of a prescribed accounting period is also conduct falling within subsection (1) of section 17 above, and

(b) by reason of that conduct, the person concerned is assessed to a penalty under that section,

the default shall be left out of account for the purposes of subsections (2) to (5) above.

(9) If the Commissioners, after consultation with the Treasury, so direct, a default in respect of a prescribed accounting period specified in the direction shall be left out of account for the purposes of subsections (2) to (5) above.

(10) This section shall come into operation on such day as the Treasury may by order made by statutory instrument appoint.

20 Repayment supplement in respect of certain delayed payments

(1) In any case where—

(a) a person is entitled to a payment under section 14(5) of the principal Act in respect of a prescribed accounting period, and

(b) the return for that period which is required in accordance with regulations under the principal Act is received by the Commissioners not later than one month after the last day on which, in accordance with those regulations, it is required to be furnished, and

(c) a written instruction directing the making of the payment due under the said section 14(5) is not issued by the Commissioners within the period of thirty days beginning on the day following the end of that prescribed accounting period or, if it is later, on the date of the receipt by the Commissioners of the return referred to in paragraph (b) above, and

(d) the amount shown on that return as due by way of payment under the said section 14(5) is not more than £100 in excess of the payment which was in fact due,

the amount which, apart from this section, would be due by way of that payment shall be increased by the addition of a supplement equal to 5 per cent, of that amount or £30, whichever is the greater.

(2) Regulations may provide that, in computing the period of thirty days referred to in subsection (1)(c) above, there shall be left out of account periods determined in accordance with the regulations and referable to—

(a) the raising and answering of any reasonable inquiry relating to the return referred to in subsection (1)(b) above,

(b) the correction by the Commissioners of any errors or omissions in that return,

(c) any such continuing failure to submit returns or pay tax as is referred to in section 14(7) of the principal Act, and

(d) compliance with any such condition as is referred to in paragraph 5(1) of Schedule 7 to that Act (production of documents or giving of security as a condition of payment).

(3) Except for the purpose of determining the amount of the supplement, a supplement paid to any person under subsection (1) above shall be treated as an amount due to him by way of credit under section 14(5) of the principal Act.

(4) This section shall have effect with respect to any prescribed accounting period ending on or after such day as the Treasury may by order made by statutory instrument appoint.

(5) If the Treasury by order made by statutory instrument so direct, any period specified in the order shall be disregarded for the purpose of calculating the period of thirty days referred to in subsection (1)(c) above.