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In a significant move for business across the UK, the HMRC has announced it will revise its late payment interest rates.
This change comes on the heels of the Bank of England’s recent decision to cut its base rate to 5%.
What changes have been announced?
HMRC announced that it would be revising the late payment interest rates to be in line with the Bank of England. So as the base rate is reduced, the HMRC late payment interest rate will also reduce.
When will the changes come into effect?
The changes are set to take place in August. With changes coming into play for quarterly instalment payments on the 12th of August. Non-quarterly instalment payments will follow suit on the 20th of August.
How are HMRC interest rates set?
HMRC sets its interest based on rules and its connection to the Bank of England’s (BoE) base rate.
Here’s how it works in everyday terms:
- Late payment interest: If you pay your taxes late, HMRC charges interest at a rate that’s the BoE’s base rate plus an extra 2.5%.
- Repayment interest: If you overpay your taxes and HMRC owes you money, the interest they pay you is the base rate minus 1%. But there’s a minimum limit: the interest can’t go below 0.5%.
- Why the difference? The higher late payment interest rate is designed to encourage taxpayers to pay on time. The lower repayment interest rate reflects the compensation for the time HMRC holds onto your money after an overpayment.
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Why are these changes coming about?
This update follows a series of economic measures designed to bolster business confidence and support economic stability. The adjustment of HMRC’s late payment interest rates is seen as a positive step towards addressing the financial challenges faced by businesses across various sectors.
For more information on how these changes might affect your business or to access resources for managing late payments, visit the HMRC website or contact your financial advisor.
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