New criteria for remission of interest from April 1

Vendor now liable for a penalty amounting to 10% of the outstanding tax.

Where a vendor has failed to pay the VAT due in respect of any tax period within the prescribed period, the vendor is liable for a penalty amounting to 10% of the outstanding tax. In addition, where payment is made on or after the first day of the month following the end of the period allowed for payment of the tax, interest is payable on the outstanding tax. This interest is calculated at the prescribed rate of interest.

Currently, the Commissioners discretion for remitting any interest is based on whether it can be shown that either:
• The failure to pay on time, did not, having regard to the output tax and input tax relating to the supply in question, result in any financial loss (including loss of interest) to the State; or
• The vendor did not benefit financially as a result of the non-compliance (taking interest into account).

In other words, the vendor could elect to use one of two options that were available in order to convince the Commissioner that the interest imposed on the underpayment of tax should be remitted.

With effect from 1 April 2010, the Commissioners discretion to remit interest will be based on a single test that will determine whether interest imposed on the late payment of VAT will be remitted. The decision to remit interest will be exclusively determined by whether the late payment was as a result of circumstances beyond the vendors control. This test is evidently very different from the previous two options available to a vendor.

Contrary to the legislation prior to the amendment, in future, it is only where a vendor does not have full control over all the processes necessary to return and pay its VAT within the required time frame, that it will be able to avoid an interest charge and in doing so, benefit financially. An example of such circumstances envisaged would be when a vendors payment instruction could not be carried out by the vendors bank because of failure in the banking system.

An interpretation note will be issued setting out the circumstances under which interest may be remitted.


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