HMRC have recently announced the interest rate they will charge on overdue tax payments will rise by a further 0.25% up to 7.0% with effect from 31 May 2023.

This increased rate is applicable to all the main taxes suffered by businesses and individuals including Income Tax, National Insurance, Inheritance Tax, Corporation Tax, Capital Gains Tax and Value Added Tax (VAT). The only exception will the be the interest rate applied to late quarterly instalment payments of Corporation Tax. The interest rate applied to these late payments will be marginally lower at 5.5%.

Over the last decade the interest rates charged by HMRC on late payments has been set at the Bank of England (BOE) base rate plus a margin of circa 2.5%. With the BOE base rate increasing from 1% up to 4.5% over the last 12 months, the interest rate charged by HMRC has now more than doubled from 3.25% up to 7.0%.

For the majority of the last decade HMRC interest rates have been competitive (compared to market lenders) as they sat at around 3%. Due to the low interest rates, any businesses or individuals struggling to settle their tax obligations on time would have done so safe in the knowledge the interest being charged by HMRC on the overdue balance was unlikely to be a significant amount.

In the current economic climate and during this period of higher interest rates everyone should be mindful the interest being levied on any overdue payments to HMRC is likely to be more substantial than it was previously.

If you are unable to settle any tax obligation with HMRC on time our advice is always to communicate promptly, clearly, and regularly with HMRC with a view to putting a “time to pay” arrangement in place (i.e. a payment plan). Whilst putting an arrangement of this manner in place will not stop interest being charged by HMRC it may reduce late payment penalties being levied by HMRC on long overdue balances.

If you or your business have an overdue tax liability with HMRC and would like to understand your current position and the options available to you, then please don’t hesitate to contact your usual Drummond Laurie contact to discuss in further detail.