HMRC increases late payment interest rates

HMRC increases late payment interest rates
The increase in the base rate from 1% to 1.25% on 16 June 2022 has triggered an increase in rates for late payments of tax. Rates increased from 27 June 2022 for quarterly instalment payments (QIPs), while late payment interest for other payments increases from 3.5% to 3.75% from 5 July 2022.
The rate of interest paid by HMRC on repayments (other than QIPs) remains unchanged at 0.5% as this rate is calculated as the higher of:
• 0.5%; and
• the Bank of England rate minus one.
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 minimum floor ensures that taxpayers continued to receive 0.5% repayment interest even when base rate fell to 0.1%. Repayment interest will continue to be paid at 0.5% until the Bank of England raises base rate above 1.5%, after which repayment interest will increase with base rate.
HMRC said: “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 or pay early.”