A recent change in legislation has seen HM Revenue & Customs (HMRC) increase the interest charged on late tax payments.
As of 6 April, those missing deadlines will now face a hefty 8.5 per cent interest charge.
A change in HMRC’s interest policy
Previously, late payment interest was calculated at the base rate plus 2.5 per cent. Under the new structure, the rate is the Bank of England’s base rate + four per cent.
Given the current base rate of 4.5 per cent, this brings the late payment interest rate to 8.5 per cent.
The change applies broadly across tax types, including Income Tax, Corporation Tax, and VAT.
Repayment interest remains modest
If HMRC owes you money, the repayment interest is calculated differently. It is set at the base rate minus one per cent, subject to a minimum of 0.5 per cent
This means that unless the base rate exceeds 1.5 per cent, repayments will accrue interest at the bare minimum.
So, while late payments now cost considerably more, repayments remain relatively unrewarding.
Large companies face higher Corporation Tax interest
For businesses making quarterly instalments of Corporation Tax, the interest on underpayments has increased from 5.5 per cent to seven per cent.
The updated rate reinforces the importance of precise forecasting and timely compliance for larger firms.
Government rationale – Fairness and discipline
According to the Government, the aim of the revised interest structure is to:
- Encourage timely payment
- Provide a fairer system for those who meet their obligations
- Reflect broader borrowing and savings trends
Internationally, it is common for tax authorities to offer a lower rate of interest on repayments compared to what they charge on late payments.
Avoiding the cost of delay
With higher charges now in place, simple oversights can become expensive. It is worth:
- Reviewing your internal tax schedule to ensure nothing slips
- Matching your payment plans to current cash flow forecasts
- Recalculating Corporation Tax instalments to reflect accurate profits
The increased cost of delay is avoidable with the right planning.