As HMRC interest rates are linked to the Bank of England base rate, its 15 December increase from 3% to 3.5% has triggered another increase in rates for late payments and repayment of tax.
HMRC has announced increases to both interest charged on late paid tax and the rate paid on repayments of tax. These rates will also apply for VAT for amounts due in relation to periods beginning on or after 1 January 2023.
The rate will increase with effect from 26 December 2022 for late quarterly instalment payments, while late payment interest for other late payments will increase from 6 January 2023.
The rate of interest on unpaid instalments of corporation tax liabilities is calculated as base rate plus one. Therefore, it will increase to 4.5% from 26 December 2022.
The rate of interest for the late payment of other taxes is calculated as base rate plus 2.5, so it will increase to 6% from 6 January 2023.
The rate of interest paid by HMRC on the overpayment of tax is calculated as base rate minus one, which means an increase to 2.5% on 6 January 2023.
Late payment interest is something that has not previously applied to late payment of VAT returns. However, these rates will now also apply for late payments and repayments of VAT for amounts due in relation to periods beginning on or after 1 January 2023.
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