What is tax payment interest and how has it changed?
With March in full swing, two changes are in effect surrounding the interest of tax repayment.
Tax interest rates, enforced by HMRC, are set in legislation and linked to the Bank of England base rates.
There are two rates:
- Late payment interest
- Repayment interest
Why are late payments and repayments different?
These two rates are separate to remain in line with the policy of other tax authorities worldwide.
According to HMRC, it compares favourably with the commercial practice for interest charged on loans or overdrafts and interest paid on deposits.
What are the changes to tax payment interest?
In early February, the Bank of England’s Monetary Policy Committee met and voted to raise interest rates to 4%.
A move which they hope will tackle rising inflation pressures.
This is the tenth vote following which the committee has increased interest rates.
The changes, enacted on 13th February for quarterly instalment payments and 21st February for non-quarterly instalments payments, make rates their highest since November 2008.
This means the late payment interest rate applied to the taxes HMRC charges interest on increases to 6.50%. An increase of 0.5%.
Meanwhile, the repayment interest rates increased by 0.5% to 3%.
This repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.
What is the lower limit?
According to HMRC, the lower limit for repayment interest ensures taxpayers still get 0.5%, even when the base rate fell to 0.1%.
Repayment interest will be paid at 0.5% until the Bank of England raises the base rate above 1.5%. It will then increase with the base rate.
Late payment has been set at base rate plus 2.5%
Need help managing the numbers?
With rates changing all the time, it can be hard to keep track.
At Rosemary Bookkeeping, we are on top of all current legislation and are experts in ensuring you know which way is up regarding your business financials.
By contacting your local expert, you benefit from regular advice on the latest tax changes.
As well as bespoke and professional management of your bookkeeping needs.
Know what tax rates are and how to avoid them, trust your local expert.
To see how outsourcing your books to your friendly local bookkeeping service could help you, find your nearest Rosemary Bookkeeping business or call 0345 862 0072 today.