The rates of interest charged by HMRC for late payment are set to be revised following the Bank of England interest rate rise to 1%.
In early May, the Bank’s Monetary Policy Committee voted to increase its base rate to 1% from 0.75%. HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the increase, HMRC interest rates for the late payment will also rise. These changes will come into effect on:
- 16 May 2022 for quarterly installment payments
- 24 May 2022 for non-quarterly installments payments
The repayment interest rate will remain at 0.5%, while the repayment rate is set at Bank Rate minus 1%, with a 0.5% lower limit.
Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.
Late payment interest encourages ‘prompt payment’ and ‘fairness’
HMRC said: “The minimum floor ensured that taxpayers continued to receive 0.5% repayment interest even when base rate fell to 0.1%. Repayment interest will continue to be paid at 0.5% until the Bank of England raises base rate above 1.5%, after which repayment interest will increase with 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 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 loss of use of their money when they overpay or pay early.”
More information on HMRC’s interest rates can be found here.