May 17 2023

Tax Authority Increases Interest Rates for Under and Overpaid Tax

Source: IBFD Tax Research Platform News

The UK tax authority, His Majesty's Revenue and Customs (HMRC) has announced that the rates of interest charged on the late payment of tax and for repayments if tax has been overpaid will increase to 7% (late payment interest rate) and 3.5% (repayment interest rate).

The Taxes and Duties, etc (Interest Rate) Regulations SI 2011/2446 link HMRC's rates to the Bank of England base rate. The late payment interest rate is set at base rate plus 2.5%, while the repayment interest rate is set at base rate minus 1%, with a lower limit of 0.5% (known as the 'minimum floor').

On 11 May 2023, the Bank Of England announced that its base rate would increase to 4.5%. Consequently, the new late payment and repayment interest rates will be 7% and 3.5% respectively. These rates will apply from 31 May 2023 because the regulations state that the increase will take place 13 working days after the date of the Bank of England meeting.