This week, the HMRC will be implementing their new interest rates on late payments and repayments following the Bank of England’s base rate drop earlier this month. As the base rate fell from 5% to 4.75%, HMRC’s interest rates will be making an even bigger drop from November 26.
The interest rate on late payments will be dropping from 7.50% to 7.25% and the interest rates on repayments will dip to 3.75% from 4%. HMRC’s interest rates are directly tied to the Bank of England’s base rate decisions.
Late payment interest rates are put upon anyone who pays or files taxes after the deadline has passed, with this in place to encourage people to pay their tax on time, or quickly resolve any underpayments to avoid the interest piling up.
Repayments, on the other hand, occur when individuals or corporations have overpaid taxes or fees and require refunds from HMRC. They receive the additional interest on these payments to compensate taxpayers for the loss of the use of their money.
These are the rates applied to late instalments and repayments on main taxes and duties including:
- Income Tax
- National Insurance contributions
- Capital Gains Tax
- Stamp Duty
- Stamp Duty Reserve Tax
- VAT
- Corporation Tax (for paying and filing)
- Corporation Tax self assessment
- Inheritance Tax
- Capital Transfer Tax
- Estate Duty
- Interest on judgement debt taxation matters
Some interest charges have already changed, such as the interest on underpaid quarterly instalment payments of Corporation Tax self assessments which dropped to 5.75% on November 18. The late payment interest has a set lower limit of 2.5% which it adds the base rate onto, meaning it won’t go below this even if the base rate does.
This happened during the pandemic where the base rate stubbornly sat below 1% until June 2022. HMRC’s late payment interest rates, however, never dipped below 2.60% throughout that time.
On the other hand, the repayment rate is almost in contradiction to the base rate as its calculated by subtracting 1% from the base rate. It also has a lower limit of 0.5%, which it sat at for nearly 2 years during the pandemic.