HMRC (Her Majesty’s Revenue and Customs) has made changes to its interest rates for late payment bills, with a significant increase to 7% starting from 31 May. This rate is double the level compared to just a year ago.
The adjustment in late payment and repayment interest rates aligns with the recent rise in the Bank of England base rate to 4.5% on 12 May. These rates are applied to the main taxes and duties that HMRC charges and pays interest on. The revised rates are as follows:
- Late payment interest rate: 7% from 31 May 2023
- Repayment interest rate: 3.5% from 31 May 2023
This means that the late payment interest rate will see a 0.25% increase to 7% starting from 31 May. The previous rate adjustment took place on 13 April. This new rate marks the highest level since the onset of the financial crisis in November 2008.
Late payment interest is applicable to outstanding tax bills, including income tax, National Insurance contributions, capital gain tax, corporation tax pay and file, stamp duty land tax, stamp duty, and stamp duty reserve tax. Additionally, the corporation tax pay and file rate will also increase to 6.75%.
The repayment interest rate will be raised from the current rate of 3.25% to 3.5%.
Furthermore, the corporation tax self-assessment interest rates, which pertain to interest charged on underpaid quarterly instalment payments, will increase to 5.25% from 5% a week earlier, starting from 22 May.
With the late payment interest now standing at 2.5% above the Bank of England base rate, HMRC will continue to pay lower interest rates to taxpayers affected by overpayments of tax at 3.5%. Simultaneously, it will collect twice as much interest from taxpayers who make late payments.
The interest paid on overpaid quarterly instalment payments and early payments of corporation tax not due by instalments will also rise to 4.25% from 4%, effective from 22 May.