Following the Bank of England decision to raise the bank base rate to 5%, HMRC has increased both its late-payment and repayment interest rates accordingly, following the established formula that interest on late payments is 2.5 percentage points above base rate (taking it to 7.5% from 11 July 2023) and the repayment rate is base rate minus 1 (taking it to 4% from the same date).
Interest on underpaid quarterly instalment payments of corporation tax is now 6%, and interest paid on overpaid quarterly instalments is 4.75% (with effect from 3 July 2023).
The 7.5% interest rate applied on the late payment of tax is said to be the highest level in 15 years. Commenting on the news, BDO said the increase comes as HMRC seeks to get tougher on late payers. Last week, the tax authority issued updated guidance which warns taxpayers that it may adjust their tax codes to collect up to 50% of gross income in order to recoup outstanding debts.
As BDO report, the latest figures issued in February revealed that the level of tax debt owed to HMRC rose by 22% year-on-year to reach more than £48bn as at 31 December 2022. This total debt comprised £7.8bn of ‘managed debt’ and £40.3bn in debt available for pursuit.
While the numbers of taxpayers in time to pay arrangements fell by 14% over the previous year to 730,617 at the end of December 2022, the level of managed debt rose considerably by 88% to £7.8bn, up from 4.1bn in December 2021.
Dawn Register, head of tax dispute resolution at BDO said: ‘While some may have got used to paying modest interest rates on late payments in the past, the current rate of 7.5% can come as a real shock. As the late payment interest rate tracks 2.5 percentage points above the base rate, there is always the possibility that this will rise even further.
‘In an effort to get tougher on the late payers, the tax authority is now warning people that it may tax up to half of their gross income via their tax code if they don’t pay their bills on time,’ Register said.
‘While this latest initiative is a sign of HMRC’s desire to get tougher on tax debtors, there is still a mountain to climb. The tax authority is under huge pressure to reduce the £48bn in outstanding tax that remains unpaid but it continues to be hamstrung by a lack of resources. The government should consider further investment in HMRC’s debt management unit to help it collect what’s due and boost the public coffers,’ Register added.
Following the Bank of England decision to raise the bank base rate to 5%, HMRC has increased both its late-payment and repayment interest rates accordingly, following the established formula that interest on late payments is 2.5 percentage points above base rate (taking it to 7.5% from 11 July 2023) and the repayment rate is base rate minus 1 (taking it to 4% from the same date).
Interest on underpaid quarterly instalment payments of corporation tax is now 6%, and interest paid on overpaid quarterly instalments is 4.75% (with effect from 3 July 2023).
The 7.5% interest rate applied on the late payment of tax is said to be the highest level in 15 years. Commenting on the news, BDO said the increase comes as HMRC seeks to get tougher on late payers. Last week, the tax authority issued updated guidance which warns taxpayers that it may adjust their tax codes to collect up to 50% of gross income in order to recoup outstanding debts.
As BDO report, the latest figures issued in February revealed that the level of tax debt owed to HMRC rose by 22% year-on-year to reach more than £48bn as at 31 December 2022. This total debt comprised £7.8bn of ‘managed debt’ and £40.3bn in debt available for pursuit.
While the numbers of taxpayers in time to pay arrangements fell by 14% over the previous year to 730,617 at the end of December 2022, the level of managed debt rose considerably by 88% to £7.8bn, up from 4.1bn in December 2021.
Dawn Register, head of tax dispute resolution at BDO said: ‘While some may have got used to paying modest interest rates on late payments in the past, the current rate of 7.5% can come as a real shock. As the late payment interest rate tracks 2.5 percentage points above the base rate, there is always the possibility that this will rise even further.
‘In an effort to get tougher on the late payers, the tax authority is now warning people that it may tax up to half of their gross income via their tax code if they don’t pay their bills on time,’ Register said.
‘While this latest initiative is a sign of HMRC’s desire to get tougher on tax debtors, there is still a mountain to climb. The tax authority is under huge pressure to reduce the £48bn in outstanding tax that remains unpaid but it continues to be hamstrung by a lack of resources. The government should consider further investment in HMRC’s debt management unit to help it collect what’s due and boost the public coffers,’ Register added.
.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")