Be prepared to pay more on your late payments after the Bank of England increased the base rate to 3.5 per cent from 3 per cent.
The ninth increase of 2022 was deemed necessary to help bring inflation down.
The decision has a knock-on effect on HMRC interest rates that are linked to the Bank of England base rate.
As a consequence of the change, HMRC interest rates for late payment and repayment will increase.
These changes will come into effect on:
- 26 December 2022 for quarterly instalment payments
- 6 January 2023 for non-quarterly instalments payments
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 base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%. The lower limit for repayment interest made sure that taxpayers continued to get 0.5% even when the base rate fell to 0.1%.
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.
Do you need advice on late payment rates? Get in touch.