Income Tax (Trading and Other Income) Act 2005 section 777

VAT repayment supplements

Section 777 provides that VAT repayment supplements received by a taxpayer are exempt from income tax.

• When HMRC repays VAT late, they may pay an additional supplement to the taxpayer as compensation for the delay.
• Any such VAT repayment supplement is not liable to income tax.
• This exemption applies regardless of whether the underlying VAT relates to a trade, property business, or other income source.
• The provision was amended in 2022 to reflect changes in how HMRC handles late payment interest and repayment interest on VAT.