Interest charges remain on corrected VAT errors

Last updated: 29 May 2019

The First Tier Tribunal in the case of G4S Corporate Services Ltd has held that an assessment for £1.25m default interest should stand, even though there was no VAT assessment. Invoices for the VAT due on services provided to the Home Office which G4S had incorrectly treated as exempt were raised late and the Home Office had paid the VAT.

G4S argued that default interest was meant to represent commercial restitution, and that the Government had not been deprived of the use of any money at any time, because at all times the VAT amounts were either held by the Home Office (before the VAT was paid) or HMRC (after the VAT was paid). But the tribunal accepted HMRC’s argument that ‘the Crown’ (and thus the Government) was not treated as a single entity for VAT, so the fact that another Government Department held the money instead of HMRC was not enough to avoid the interest penalty. This case provides an illustration of the importance of getting VAT right first time, as even if the VAT is correctly paid later, an interest charge can remain.  

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