HM Revenue & Customs (HMRC) will raise interest charged on overdue tax and paid on eligible tax overpayments after the Bank of England’s Monetary Policy Committee lifted its base rate to 4%. The increase raises the cost for people with late tax bills and the rate available to taxpayers eligible for repayment interest.
The Bank of England announced the move from 3.75% on Nov. 5. HMRC said in a notice published Nov. 6 that its changes will start Nov. 16 for quarterly installment payments and Nov. 24 for non-quarterly installment payments.
Legislation sets HMRC’s rates using the Bank of England base rate. The statutory formula adds four percentage points for late-payment interest. For repayment interest, it subtracts one point, with a minimum rate of 0.5%.
Applying the new 4% base rate to those formulas gives calculated rates of 8% for late payments and 3% for eligible repayment interest. HMRC said it will update its published payment rates shortly, so those figures are calculations pending that update.
The tax authority said late charges are designed to encourage timely payment. It described repayment interest as compensation for the time taxpayers cannot use money they paid in excess. HMRC said it will update its published payment rates shortly.
