Following the Bank of England’s base rate increase to 1%, HMRC interest rates for late payments will be adjusted. On May 5, 2022, the Bank of England’s Monetary Policy Committee voted to raise the base rate to 1% from 0.75%. The Bank of England base rate directly influences HMRC interest rates.
With the changes in the base rate,ย HMRC interest rates for late payments will increase.ย These changes will come into effect on:
- 16 May 2022 for quarterly instalment payments
- 24 May 2022 for non-quarterly instalment payments
The interest rate on our loans will remain at 0.5%. The repayment rate is calculated as Bank Rate minus 1 per cent, with a lower limit of 0.5 per cent.
How Are HMRC Interest Rates Set?
The Base Rate, set by the Bank of England, is the primary statutory interest rate established in law, linked to the UK base rate. Late payment interest rates are calculated using a base rate plus 2.5%. Repayment interest rates are set at a base rate of minus 1%, with a lower limit, or โminimum floor,โ of 0.5%.
The minimum floor ensured that taxpayers would receive 0.5 per cent repayment interest even if the base rate fell to 0.1 per cent. Until the Bank of England raises the base rate above 1.5%, repayment interest will continue at 0.5% each year; afterwards, with a rise in the base rate, repayment interest will increase.
The difference between late payment interest and repayment interest aligns with the policy of worldwide tax authorities. It compares favourably to commercial practice for interest charged on loans or overdrafts, as well as interest paid on deposits.
The interest rate for late payments encourages prompt payments while maintaining equity for those who pay their taxes on time. The rate of repayment interest appropriately compensates taxpayers for the loss of interest on their money when they overpay or pay early.
Current Late Payment And Repayment Interest Rates
The following are the current late payment and repayment interest rates set by HMRC for the primary taxes and duties that it currently charges and pays interest on:
- late payment interest rate โ 3.50% from 24 May 2022
- repayment interest rate โ 0.5% from 29 September 2009
Conclusion
As you can see, the changes in the Bank of England’s base rate will have a direct impact on HMRC interest rates for late payments and repayments. It is essential to stay up to date with these changes to ensure you are not charged more than you should be. You can find more information on the HMRC website or contact us to speak to one of our advisors.
