For the sixth time this year, interest rates will be increasing next month from 11th October 2022.
Starting at 2.6% at the beginning of 2022, the most recent increase was 4.25% just last month, following the Bank of England’s decision to raise their base rate from 1.25% to 1.75%
in August.
Now, in September, the Bank of England Monetary Policy Committee has voted to increase the base rate yet again to 2.25%. Since HMRC interest rates are linked to the Bank of England’s base rate, this means that HMRC interest payments – which went up last month – are also going up in October.
What is happening to HMRC interest rates?
HMRC charges interest on late tax payments or repayments in line with the Bank of England (BoE). Late payment interest is the BoE base rate +2.5%, while repayment interest is the base rate -1%
(with a lower limit of 0.5%).
The BoE uses their base rate to tackle inflation by discouraging over-borrowing, and HMRC uses their linked interest rates to encourage prompt tax payments.
Since the BoE base rate went up to 1.75% in August, HMRC’s interest rates increased to 4.25% for late payments and 0.75% for repayments. Just over a month on, another BoE base rate increase for October will also be pushing these rates up again.
Since the BoE base rate rose to 2.25% on 22nd September, the new HMRC rates will be:
- • Late payment interest rate – 4.75%
- • Repayment interest rate – 1.25%
These HMRC interest rates will take effect on 11th October 2022 for non-quarterly instalment payments. However, for quarterly instalment payments, the changes come into effect over a week earlier on 3rd October 2022.
This may be the highest interest rate increase in 14 years, but market predictions believe that it could more than double in the next year to 5.8%.
Who will be affected by the new HMRC interest rates?
Anyone who isn’t up to date with tax payments may struggle with paying the higher interest rates on top of their outstanding taxes, especially with the ever-rising cost of living. The increased HMRC interest rates will apply to the following taxes:
- Income Tax
- National Insurance Contributions
- Capital Gains Tax
- Inheritance Tax, Capital Transfer Tax, and Estate Duty
- Stamp Duty Land Tax, Stamp Duty, and Stamp Duty Reserve Tax
- Corporation Tax
- VAT, Air Passenger Duty, Insurance Premium Tax, and environmental taxes
Interest is charged daily from the date that a payment becomes overdue until the date that it’s paid off in full. The longer it takes to pay off, the more interest will accrue.
The due date for PAYE tax payments to HMRC is the 19th of the month for cheque payments and the 22nd of the month for electronic payments – while interest begins to accrue from the 19th, it will be cancelled if you pay electronically by the 22nd.
The only good side of the interest rate news is that people who have overpaid taxes will earn more interest on repayments, meaning they’ll receive more money back from HMRC.
Do you need HMRC tax advice?
With inflation and interest rates soaring to the highest levels in over a decade, it’s more important than ever to make sure that your taxes are filed and paid on time.
Thanks to HMRC’s interest rates system, it’s better to pay early – and perhaps end up overpaying and receiving repayments – than it is to miss deadlines and end up paying more in late payment interest that you won’t get back.
If you think you would benefit from a tax consultancy service to help you manage your finances and tax payments, why not contact GBAC?
Our accountants in Barnsley provide a wide range of services to individuals and businesses across the nation, from payroll to probate, ensuring that every client stays on top of their taxes.