New HM Revenue and Customs (HMRC) late payments charges will come into effect later this month after the Bank of England’s decision to cut interest rates. The bank dropped the base rate from 4.75% down to 4.5%, with the HMRC rate to also drop as a result.
The late payment rate is expected to drop from 7.25% to 7%, with the repayment rate to fall from 4% to 3.75%. These new rates will come into force on February 17 for quarterly instalment payments, and on February 25 non-quarterly instalments payments.
Explaining how the rates are set, HMRC explains on its website: “HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is currently set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.”
The information page also explains the thinking behind how the Government sets the rates, stating: “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.”
HMRC also adds that “information on the interest rates for payments will be updated shortly.”
