HMRC has increased the interest rate on tax that is paid late. As the Bank of England increased its own rates, so did HMRC and it is now at its highest for many years ...
- late payment interest rate - 4.75% from the 11th of October 2022
- repayment interest rate - 0.75% from the 11th of October 2022
HMRC sets interest on tax paid late via legislation which is linked to the Bank of England base rate. These two rates are:
- late payment interest rate - BoE base rate plus 2.5%
- repayment interest rate - BoE base rate minus 1% (0.5% minimum)
According to HMRC, the late payment interest rate encourages prompt payment and ensures fairness for those who pay on time. The repayment interest rate compensates taxpayers fairly when they overpay or pay early.
Since the beginning of 2022, HMRC's interest rate has increased by 1.5% which is the equivalent of an extra £225 per year on a £15,000 tax liability. This equates to £650 of interest per year!
If the Bank of England increases the base rate further to something like 2.5%, which is entirely possible, HMRC could increase its late-paid tax interest rate to a whopping 5% by the end of the year.
A great number of taxpayers have seen long delays for the past few years as HMRC continues to move very slowly to make repayments, but is incredibly quick to demand taxpayers pay what they owe.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.