17 May
The Bank of England’s base rate increased to 1%. Learn more!
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 per cent. The Bank of England base rate directly influences HMRC interest rates.
With the changes 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 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 by the Bank of England is the primary statutory interest rate set in law, linked to the UK base rate. Late payment interest rates are calculated using a base rate plus 2.5 per cent. Repayment interest rates are set at a base rate of minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.
The minimum floor assured 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 is in keeping with worldwide tax authority policy, and 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, and the rate of repayment interest appropriately compensates taxpayers for the loss of usage of 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 — 3.50% from 24 May 2022
- repayment interest rate — 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 important to keep up to date with these changes to ensure that 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.
Author Bio
Jibran Qureshi FCCA is the Managing Director of Clear House Accountants and has over 13 years of experience in practice across multiple industries. Jibran’s educational background includes a Master’s in Financial Strategy from Oxford University and an Executive MBA from Hult International Business School. His experience in Financial Strategy, Tax Planning, Operational Consultancy and Performance Reporting guide his cognizant approach to leading Clear House and its clients to the future. This dexterity led him to be Enterprise Nation’s Top 50 Advisors. Jibran recognised the need to manage the innovative disruptions sustainably early on and shaped Clear House Accountants not just to be compliance specialists but advisors who help build complex ecosystems around cloud accounting software, provide advice on funding support, help manage innovative tax schemes, set up and implement complex strategic plans, and much more. So, his clients can thrive, not just survive.
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