HMRC interest rates for late payments will be revised following the Bank of England interest rate rise to 1%.
The new rates are set to affect those who make late payments on NIC, Income Tax, CGT, Inheritance Tax and stamp duty. The Bank of England has increased their rate as the UK suffer its highest inflation rate in four decades.
HMRC has announced that late payment interest rates will be reviewed after the Bank of England voted to increase its rates. This comes after The Bank of England Monetary Policy Committee voted to increase the base rate to 1% from 0.75% on the 5th of May 2022.
The Bank of England Monetary Policy Committee voted on 5 May 2022 to increase the Bank of England base rate to 1% from 0.75%.
HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the change in the base rate, HMRC interest rates for the late payment will increase. These changes will come into effect on:
- 16 May 2022 for quarterly instalment payments
- 24 May 2022 for non-quarterly instalments payments
The repayment interest rate will remain at 0.5%. The repayment rate is set at Bank Rate minus 1%, with a 0.5% lower limit.
Information on the interest rates for payments will be updated shortly.
How HMRC interest rates are set
HMRC interest rates are set in legislation and are linked to the Bank of England base rate.
Late payment interest is set at a base rate plus 2.5%. Repayment interest is set at the base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.
The minimum floor ensured that taxpayers continued to receive 0.5% repayment interest even when the base rate fell to 0.1%. Repayment interest will continue to be paid at 0.5% until the Bank of England raises the base rate above 1.5%, after which repayment interest will increase with the base rate.
The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with the commercial practice for interest charged on loans or overdrafts and interest paid on deposits.
The rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for the loss of use of their money when they overpay or pay early.
If you are unsure about how this may affect you, contact your tax advisor directly on 01942 816 512.
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