The Bank of England Monetary Policy Committee voted on 15th December 2022 to increase the base rate to 3.5% from 3%. HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will increase. These changes will come into effect on:
- 26th December 2022 for quarterly instalment payments
- 6th January 2023 for non-quarterly instalments payments
How HMRC interest rates are set
HMRC interest rates are set in legislation and are linked to the Bank of England base rate.
Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.
HMRC claim that the differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.
The rate of late payment interest is claimed to encourages ‘prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay’.