HMRC raises interest rates for late and over-payments
'Consumer Duty Day' was on 31 July 2023, the day on which the Financial Conduct Authority (FCA) launched their new set of higher standards for consumers of firms providing financial services. Their 14-point plan hit the headlines and how banks and building societies should pass in interest rates to savers.
Business owners holding large cash deposits should be considering how to make that money work harder for them by shopping around for better bank and bond rates. But businesses should also consider their tax accounts with HMRC.
Following the Bank of England's recent rises in interest rates, currently up to 5.25%, HMRC has followed suit. Set by their Monetary Policy Committee (MPC) and known as the Bank Rate, this sets the interest rate charged to commercial banks.
Hence, as we have seen in recent months, if it is more expensive to borrow money for the banks, this is often passed on via higher lending rates, e.g. mortgages. Possibly, banks will reflect the Bank Rate in interest rates to savers (which leads back to our opening line about the FCA’s ‘Consumer Duty Day’ and their set of higher standards, particularly the 14-point plan designed to ensure that interest rate rises are passed onto ‘savers appropriately’).
HMRC is one financial organisation never in breach of passing on interest increases where credit balances appear, for example an overpayment of Corporation Tax. Similarly, they are never tardy in passing on the higher rates either, as their interest rates are linked to the Bank Rate. There are two rates for taxes that apply UK-wide:
- Late payment interest: Bank Rate +2.5% (i.e. 7.75%)
- Repayment interest: Bank Rate –1% (with a ‘minimum floor’ of 0.5%) (i.e. 4.25%)
(For large companies late corporation tax paid quarterly is charged at 6.25%)
New rates were published earlier in August 2023.
If you are late with your self-assessment payment on account due on 31 July 2023 or if you have any corporation tax liabilities outstanding then you should pay these as soon as possible to avoid incurring further interest charges. Taxpayers should also note that there will be a 5% surcharge on any tax still outstanding 30 days after due date, i.e. 30 August 2023.
Note that different late payment and repayment interest rates apply to the taxes that are fully devolved. These are not linked to the Bank Rate:
- Scotland (for Land and Buildings Transaction Tax (Stamp Duty equivalent), Scottish Landfill Tax (Landfill Tax equivalent) and
- Wales (for Land Transaction Tax (Stamp Duty equivalent) and Landfill Disposals Tax (Landfill Tax equivalent)
Action for Taxpayers
You can log in to your government gateway account to check your outstanding tax balances.
The new rates come into force on:
- 14 August 2023 (for quarterly instalment payments) and
- 22 August 2023 (for non-quarterly instalments payments)
The message for taxpayers is that paying on time and accurately always pays, regardless of the tax in question. HMRC say, ‘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’.
If you want to know more or are unsure about making any tax payments then please get in touch with our team.