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HMRC’s new interest rate hike on unpaid taxes
HMRC is increasing the interest rate it charges on unpaid taxes to 4.75%.
The most recent hike is up from 4.25%, a rate set in August. This 0.50% increase reflects the most recent rise in the Bank of England base rate and marks the sixth late payment interest rate hike from HMRC this year.
The real concern is this latest hike is expected to affect the millions of Britons that have to file their own tax returns at a time when many are struggling to manage the basic cost of living, and that looks to get worse before it gets better.
The changes to HMRC’s interest rates will come into effect on 3 October 2022 for quarterly instalment payments, and 11 October 2022 for non-quarterly instalments payments.
Although the rate hikes reflect the increase we’ve seen in the base rate this year, the most notable point is this rate is over three times the rate that HMRC pays on money that itself owes, creating the sense for many that this hike represents a ‘one rule for them, another rule for us’ mentality.
HMRC’s late payment interest rate
HMRC’s late payment interest rate is the rate at which you pay interest on taxes that you have not paid. This applies to any taxes you have not submitted before the deadline.
Taxes include capital gains tax, inheritance tax, income tax, national insurance contributions and stamp duty.
The late payment interest rate is linked directly to the Bank of England’s base rate. Calculating the late payment interest rate is always the current base rate plus a flat 2.5%.
Why does HMRC keep hiking the late payment interest rate?
Reviewing the base rate is something the Bank of England does in order to help control inflation. Due to the current inflation crisis we’re seeing across many parts of the world, including in the UK, the Bank of England is pushing the base rate up quickly to try and slow the rate of inflation. The base rate jumped again from 1.75% to 2.25% last week - and it will likely continue to increase until the Bank of England feel that inflation is brought back under control. This means that the late payment interest rate will continue to increase alongside the base rate, making it all the more important to make sure you get your taxes submitted by the deadline.
“The interest we charge and pay ensures we do not encourage people to overpay their tax to secure a higher interest rate than available commercially, and that those paying their tax late do not get an unfair financial advantage over those paying on time,” said HMRC.
They continued: “The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.”
As inflation rates and interest rates continue to climb, it's more important to keep on top of your finances than ever before.
Our tax planning services include certain products, allowances and guidelines to ensure your money is working its hardest and to ensure the tax you pay is ultimately a fair, yet minimal, amount.
If you want to find out more, why not give us a call on 0333 323 9065 or book a free no-obligation initial consultation with one of our chartered advisers to find out how can help.
Please note: The FCA does not regulate tax advice. This article is intended for general information only and should not be taken as individual financial advice.