We all now know that if you pay your tax late HMRC will charge you/your company interest on the late payment, but do you know what rates of interest HMRC apply?
What interest charges and rates do HMRC apply?
A fact that not everyone knows is that late payment interest is linked to the Bank of England base rates. The HMRC late payment interest rate is 2.5% above base, and the rate of interest charged at the time of writing is 7.75%. The increase is automatic but normally takes HMRC around two weeks to update their system from the date the Bank of England announces the change.
Unfortunately, HMRC interest on tax repayments is not so generous. Repayment interest is pegged at 1% below base (with a minimum set at 0.5%), so is currently 4.25% and these rates apply to all the main taxes: income tax, corporation tax, VAT, National Insurance, CGT, IHT, SDLT etc
There are exceptions and the most common is companies which are required to pay tax by quarterly instalments, the interest rate on late paid instalments is 1% above base and is therefore currently charged at 6.25%, which is still a significant cost.
There is some light at the end of the tunnel, at least the Interest is not compounded; it is simple interest and for companies there is also the possibility of claiming tax relief for the interest under the non-trade loan relationship rules.
Do HMRC ever waive interest charges?
It is very rare for HMRC to waive interest charges. HMRC take the view that interest is not a penalty but is merely compensatory for not having had the money on time. For that reason, there is no appeals process in the legislation as there is for penalties, but not everyone knows that you can lodge an objection. HMRC will often raise the point that the money was in your account earning interest so they are right to charge interest in nearly all cases. Two possible reasons for objecting could be due to a long HMRC delay (> 6 months) or maybe even undue hardship.
As the HMRC rate is linked to the Bank of England base rates the interest charges levied on late paid tax was not a particularly significant cost for more than a decade. But with increasing interest rates over the past 18 months it is now more important than ever to pay your tax on time.
If you would like to speak to a member of our tax team regarding Corporation Tax, Income Tax, VAT, National Insurance or indeed any other area of tax, or indeed any of the late payment interest points made in this post please contact us on 020 3697 7147 or you can visit our web chat in the bottom right corner which is manned during office ours and you can leave a message out of hours.
The RPGCC team are always just a click or call away.