After the recent adjustment in the Bank of England base rate to 4.5%, HMRC swiftly followed suit. It has revised its interest rates associated with late tax payments, which will now carry a charge of 7%, a rate unseen since the financial crisis of 2008.
This increased rate, which represents a 100% surge from just a year ago, will come into effect from the 31st of May 2023!
The late payment interest rate's rise is steep, up 0.25% from the last rate revision on the 13th of April. A considerable spike indeed, it will now be 2.5% above the Bank of England base rate. The upshot of these adjustments is a clear demonstration of HMRC's intent to dissuade late tax payments and prompt taxpayers to pay their dues promptly.
This new rate will apply to a multitude of taxes and duties for which HMRC imposes and pays interest. These include Income Tax, National Insurance Contributions, Capital Gain Tax, Corporation Tax, and various stamp duties. Specifically, the rate for Corporation Tax pay and file will also see an increment, now rising to 6.75%.
In addition, taxpayers should note that the repayment interest rate, the rate applied to overpaid taxes, will experience an upward adjustment. Previously sitting at 3.25%, the new rate of 3.5% will come into operation from the 31st of May 2023.
A point of contention emerging from these revisions is HMRC's payment of a lower interest rate to taxpayers affected by overpayments of tax. While it collects a substantial 7% from those who miss their payment deadlines, the interest paid back on overpaid taxes is half this figure at 3.5%.
The disparities between the punitive measures for late payments and the compensatory rates for overpayments are likely to spur discussion!
The overarching theme of these changes is to promote timely tax payment, and it could prove an effective deterrent to late payments. As the ramifications of these adjustments become evident over the coming months, taxpayers across the board are encouraged to remain vigilant and comprehend the new tax dynamics
If you need to adjust your financial planning then I'm always here to help.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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