Azets, the UK Top 10 accountancy firm provides the latest information.
It was announced on 22 June that the BoE would increase the base rate yet again to 5%, marking a 15-year high. HMRC’s tax payment interest rates are linked to the Bank of England (BoE) base rate, which continues to rise. The base rate increases are introduced as a means of calming stubborn inflation but it has a direct impact on taxpayers who are already dealing with heightened financial pressures.
The late payment interest is calculated at base rate plus 2.5% and repayment interest is set at base rate minus 1% (minimum floor of 0.5%). As such, the late payment rate now stands at 7.5% and the repayment rate is 4%.
There have been consistent rises on HMRC interest rates and there are no signs of them letting up. This late payment increase is the 13th consecutive jump, with the last reduction being on 7 April 2020.
A year-on-year comparison shows a 4% late payment increase, equating to an extra £400 per annum on a £10,000 tax liability. The repayment rate was at the lower limit level of 0.5% for 13 years before it started to creep up from August 2022.
Despite HMRC’s repayment rate being significantly lower than the late payment rate (and we understand that this is a factor that has been drawn to HMRC’s attention of late by the professional bodies), it represents a possible incentive for taxpayers to complete their tax returns early and get any necessary payments made early.
These rises are across Income Tax, National Insurance contributions, Capital Gains Tax, Stamp Taxes, Stamp Duty Reserve Tax and nonquarterly instalment payments for Corporation Tax. In addition, VAT late payment charges also now apply for accounting periods commencing on or after 1 January 2023.
While not falling within late payment interest described above, interest on underpaid quarterly instalments of corporation tax has also risen to 5.5% on 22 May 2023, an increase of 4.4% from 1.1% this time two years ago and the highest rate for 15 years.
Considerations for taxpayers
Any taxpayers who have outstanding tax bills should seek to repay as much as possible before another hike in the interest rate occurs, which is widely expected prior to the end of this year. It is widely predicted that the BoE rate will climb to 6% by December 2023 and this will further impact taxpayers who are encountering financial pressures or regularly fall into the late payment category.
Anyone who is in a position where they can’t pay the tax owed could be eligible to discuss a Time to Pay Arrangement with HMRC. This is a flexible and bespoke option for any individual or business struggling with tax obligations. However, if going down this route, it’s critical to know finances as HMRC may ask for details of income and expenditure to ensure that payment terms are realistic.
We are here to help
If you have any questions about the late payment interest hikes,or need advice on managing your tax requirements, please get in touch with a member of the Azets Tax Team or hello@azets.co.uk
www.azets.co.uk
This article is for general information only and is not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of the contents of this article.