HMRC late payment interest rates to be revised after BoE increases base rate

The Bank of England monetary policy committee voted on 4 August to increase the Bank of England base rate to 1.75 per cent from 1.25 per cent.

HMRC interest rates are linked to the Bank of England base rate.

As a consequence of the change in the base rate, HMRC interest rates for the late payment will increase.

These changes will come into effect on 15 August 2022 for quarterly instalment payments and 23 August 2022 for non-quarterly instalments payments.

The repayment interest rate will increase to 0.75 per cent. The repayment rate is set at bank rate minus 1 per cent, with a 0.5 per cent lower limit.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate.

Late payment interest is set at base rate plus 2.5 per cent. Repayment interest is set at base rate minus 1 per cent, with a lower limit – or “minimum floor” – of 0.5 per cent.

The minimum floor ensured that taxpayers continued to receive 0.5 per cent repayment interest even when base rate fell to 0.1 per cent. Repayment interest will continue to be paid at 0.5 per cent until the Bank of England raises base rate above 1.5 per cent, after which repayment interest will increase with base rate.

The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

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 or pay early.