Bank of England rate hike will increase late payment tax return charges

Following the most recent increase in the Bank of England base rate, interest charges for taxpayers who file their returns late will increase.

HMRC’s late payment interest rates are tied to the base rate, which was raised last month from 1.25% to 1.75%.

The statute that governs HMRC interest rates mandates that they track the Bank of England’s base rate.

Interest on overdue accounts is levied at 2.5% above the base rate. Interest on principal repayments is set at the base rate minus 1%, with a floor of 0.5%. Repayment interest for taxpayers remained at 0.5% despite a base rate drop to 0.1% because of this minimal floor.

The difference between repayment interest and late payment interest is consistent with the stance of other tax authorities around the world, and compares positively with interest charged on loans, overdrafts, and deposits.

The interest rate for overpayment or early payment is designed to fairly compensate taxpayers for the loss of use of their money in those situations, while the interest rate for late payment is intended to encourage prompt payment.

If you need any help ensuring your tax returns are filed correctly on time, contact JW Hinks on 0121 456 0190. Our experienced tax team will be happy to ensure you are paying everything you owe, ensuring that you do not receive penalties from HMRC without paying more than you need to.