Late payment interest rates to rise following base rate increase
Late payment interest rates levied by HMRC are to be revised following the latest Bank of England interest rate rise.
On 22 September 2022, the Bank of England Monetary Policy Committee voted to increase the Bank of England base rate by 0.5% to 2.25% from 1.75%.
Interest rates levied by HMRC are linked to the Bank of England base rate. Following this increase in base rate, HMRC interest rates for late payments will also increase.
When will late payment interest rate changes come into effect?
These interest rate changes will come into effect as follows:
- Quarterly instalment payments – 11 October 2022
- Non-quarterly instalments payments – 11 October 2022
The rate for repayment interest is to increase to 0.5%. This is set at Bank Rate minus 1% (with a 0.5% lower limit).
What is the HMRC late payment interest rate now?
From 11 October 2022, HMRC late payment and repayment rates will be as follows:
- 4.75% for late payment interest rate
- 1.25 % for repayment interest rate
How does HMRC set its late payment interest rates?
Interest rates levied by HMRC are set in government legislation which is linked to the Bank of England base rate.
Interest on late payments is set at base rate plus 2.5%. Repayment interest is set differently at base rate minus 1%, with a minimum interest rate of 0.5% (also know as the minimum floor).
This minimum floor means that taxpayers continue to receive 0.5% repayment interest even when base rate is lower than this, for example when it fell to 0.1%.
Repayment interest continue to be paid at 0.5% until such time as the Bank of England raises base rate above 1.5%. When his happens, as is the case with the recent rise, repayment interest increases with base rate.
HMRC state that the differential concerning repayment interest and late payment interest is in line with the policies of other tax authorities worldwide.
HMRC further explain that the late payment interest rate ensures fairness for those who pay their tax on time, encouraging prompt payment.
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