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HMRC Raises Late Payment Interest to 7.75% which is the highest Since 2001

In a significant financial development, the United Kingdom's tax authority, HMRC, is making waves by increasing its late payment interest rates to a striking 7.75%. This substantial surge is set to take effect from August 22, 2023, and marks the most substantial escalation in these rates since the year 2001. The decision to revise these rates stems from the Bank of England's recent move to raise its base rate to 5.25% on August 3. These revisions, impacting the financial landscape, are specifically applicable to major taxes and duties that HMRC manages.

Here are the key points to take note of:

  1. Late Payment Interest Surge: Commencing from August 22, 2023, the late payment interest rate will undergo a remarkable increase, reaching 7.75%. This alteration aims to encourage timely payments and discourage any delays in settling tax obligations. This change is particularly noteworthy given the substantial increment of 0.25% from the preceding rate. It's important to mention that the last time late payment interest rates reached such heights was in August 2007.

  1. Repayment Interest Adjustment: Simultaneously, HMRC is also adjusting its repayment interest rates. As of August 22, 2023, these rates will stand at 4.25%. This modification aims to ensure fairness by creating a balanced interest framework for both payments and refunds.

  1. Corporation Tax Pay and File Rate: Alongside these changes, the corporation tax pay and file rate will also witness a parallel surge to 7.75%. This adjustment is a clear indication of HMRC's efforts to ensure that all tax-related processes are synchronized and streamlined.

  1. HMRC's Overpayment Interest Update: Considering these shifts, HMRC is not only raising its late payment interest rates but also making revisions to the interest rates associated with overpayments. The new rate of 4.25% for overpayments reflects a strategic decision aimed at maintaining consistency and coherence in the overall financial landscape. There is obviously a disparity between the two rates.

  1. Corporation Tax Self-Assessment Interest Rate: A noteworthy alteration in this announcement pertains to the corporation tax self-assessment interest rate. The rate applicable to interest charged on underpaid quarterly instalment payments is set to rise from 6% to 6.25%. This tweak reinforces HMRC's focus on ensuring accurate and timely payments from businesses.

  1. Enhanced Interest for Early Payments: For those who proactively fulfil their tax obligations, HMRC is increasing the interest rate for early payments of corporation tax not due by instalments. This interest rate will rise to 5%, a notable increment from the previous rate of 4.75%.

As these substantial interest rate revisions take centre stage, it's important to stay informed about their implications. For more comprehensive information on these changes and their potential impact, visit the [HMRC Interest Rates]( link.

Delriene Smith

DBM Founding Coach