HMRC has announced an update to its interest rates for late payments and repayments, effective from today. The revisions are in line with the Bank of England’s recent decision to lower its base rate, which directly influences these rates. The changes aim to ensure fairness for taxpayers while encouraging timely payments.
As part of the shift in economic conditions, HMRC has adjusted the interest rates that apply to taxpayers who miss their payment deadlines or overpay their taxes. These changes follow the Bank of England’s reduction of its base rate from 4.25% to 4%, a decision made during the latest Monetary Policy Committee meeting. The updated interest rates are designed to reflect these broader economic shifts and ensure that the tax system remains equitable for all.
Late Payment Interest Rate Set at 8%
Effective from August 18, the late-payment interest rate will be set at 8%. This adjustment follows the Bank of England‘s decision to reduce the base rate, which directly impacts how HMRC calculates the interest it charges taxpayers who miss tax payment deadlines. According to HMRC, the new rate follows the established formula that sets late-payment interest at the base rate plus four percentage points.
This rate change is significant as it reflects the latest reduction in the base rate. Late-payment interest is designed to encourage taxpayers to pay their tax bills on time, ensuring that those who meet their obligations are not disadvantaged.
Repayment Interest Rate Drops to 3%
Simultaneously, HMRC will reduce the repayment interest rate to 3%, effective from August 27. This rate applies to taxpayers who have overpaid their taxes or made early payments. Under the formula used by HMRC, repayment interest is calculated at one percentage point below the base rate, with a floor of 0.5%. As a result of the Bank of England’s base rate reduction, the repayment interest has seen a drop from its previous level.
This change ensures that taxpayers are fairly compensated for any money they have overpaid or that has been held by HMRC for an extended period. While the late-payment rate encourages timely tax settlement, the repayment rate is designed to make up for the lost time on funds that have not been used.
By maintaining this distinction between late-payment and repayment rates, HMRC aims to provide a fair framework for all taxpayers. The adjusted rates are part of ongoing efforts to ensure that HMRC’s policies align with current economic conditions and provide consistency across the tax system.
