HMRC hikes late payment interest rate to 8.5%

Sara White, Editor, Business & Accountancy Daily

HMRC updates guidance to reflect 1.5% increase in the late payment interest percentage to 8.5% now in force

Late payment interest is charged from the first day that the tax debt is overdue until the day it is paid in full. It has been calculated at the Bank of England base rate plus 4% as of 6 April.

The decision to increase the late payment interest rate was taken at the Budget last autumn. Previously the premium was only 2.5% in additional interest.

The Bank of England is reviewing interest rates on Thursday this week so it is possible that the HMRC rate could drop if the decision is taken to cut the base rate, widely expected by economists.

While taxpayers are charged a punitive 8.5% for late payments, HMRC enjoys a favourable position where it only pays out 3.5% if tax is overpaid, for example for tax refunds.

It is not possible to appeal against late payment interest charges. However, taxpayers can object if HMRC has made a mistake or caused an unreasonable delay, which has contributed to the build-up of interest; the relevant date or effective date of payment is disputed, orquestions the legislation.