HMRC has updated its guidance notice on default interest. Default interest is charged on an amount of VAT which has been underdeclared or overclaimed from the time the amount due should have been paid. HMRC state that default interest will only be applied where commercial restitution is at issue. Commercial restitution is compensation for the loss of use of any underdeclared or overclaimed VAT.
HMRC will not charge interest if a taxpayer underdeclared an amount of VAT which would have been immediately reclaimable as input tax by a third party, as this would not represent commercial restitution. This notice also details other scenarios where default interest does not arise in addition to the cases of non-commercial restitution.
If a taxpayer disagrees with the amount of interest charged by HMRC, then he/she may ask for it to be reconsidered by writing to the National Written Enquiries Unit within 30 days of the date of notification of the interest charge. The notice states that the local office will ensure that an officer not involved in the original decision considers the full facts of the case. If the taxpayer does not agree with the result of the reconsideration, the case can appealed to the First-Tier Tribunal to decide the matter.
Full details on Default Interest is available here