With increases in mortgages, food prices and energy bills, it’s no secret that the last 18 months have been incredibly difficult for the UK taxpayer. During this time we’ve seen every aspect of our lives becoming much more expensive. It should then be no surprise that HMRC has also increased their rates of interest on late payment and early repayment interest by equally eye-watering amounts.
What is Late Payment Interest?
When a tax liability is paid late, HMRC will begin accruing late payment interest, furthering the amount of money owed to them. This comes at times also in addition to fixed-rate penalties.
This late interest rate is determined by the Bank of England’s base rate plus 2.5% and affects Income Tax, Corporation Tax, Capital Gains Tax and Inheritance Tax.
Since December 2021, the Bank of England has increased the base rate at 14 consecutive meetings, taking the base rate to its highest in over 15 years. Since 22 August 2023, the HMRC late payment interest has consequently risen to 7.75%, although the interest rate can vary depending on the tax.
Alarmingly, where the inflation is still rampant economists expect the base rate to rise further in the next 6 months, potentially reaching a peak of 5.8% in March 2024. This could mean by Spring 2024 the HMRC late payment interest rate could rise as high as 8.3%!
It is therefore even more important than ever to pay your tax liabilities on time to avoid receiving expensive interest charges (in addition to potential penalty charges). What’s more, there may even be benefits to paying tax liabilities early!
Why Should I Pay my Tax Liabilities Early?
Unlike most bills we have to pay, there are potential benefits to paying your estimated tax liability early. If you were to pay your estimated tax liability earlier than the payment deadline, and the actual liability works out to be less than what you paid in advance, HMRC will not only refund you the overpayment but will usually also pay repayment interest on top.
Expectedly, HMRC sets the repayment interest rate at the base rate minus 1%, demonstrating less generosity. Since 22 August 2023, the repayment interest rate has therefore been 4.25%. Perhaps one of the only benefits of the base rate’s constant increase is the increase in repayment interest, which is even comparable to or exceeds the interest rate most banks and building societies provide today – which is unusually generous of the tax man!
If you can take the cashflow hit, HMRC will certainly not disagree with receiving payment of your tax liabilities early or on time. By settling your liabilities promptly, you ensure that you owe nothing to HMRC and protect yourself from any unwelcome penalties and interest charges, bringing you at least peace of mind.
Get in touch
HMRC interest and penalties can often feel frightening and overwhelming when issued. However, rest assured the team here at Starbox is here to help!
If you are looking for further support or would like assistance with your tax planning and affairs, please do not hesitate to get in touch with the team at StarBox by calling 01273 043678.