Interest rate hike puts pressure on taxpayers behind on payments
In light of the recent increase in the Bank of England’s base rate, HM Revenue & Customs (HMRC) has announced a rise in interest on both late paid tax and repayments of tax.
This news comes as costs continue to rise across the board.
HMRC interest rates are linked to the Bank of England’s base rate. The two rates are detailed below:
- Late payment interest – base rate plus 2.5 per cent
- Repayment interest – base rate minus 1 per cent (there is a lower limit of 0.5 per cent also known as the minimum floor)
Because HMRC’s interest rates are set in legislation, the rise in interest owed on late tax bills to 4.25 per cent on 23 August is unavoidable.
At the same time, this rate (not seen since January 2009) has many taxpayers worried about their outstanding tax bills.
When you put this increase in the context of rising living costs and a looming recession, there is all the more reason to be concerned.
Since the start of 2022, HMRC’s interest rate has increased by 1.5 percentage points.
In real terms, this is the equivalent of an extra £225 per annum on a £15,000 liability.
Considering the rise to 4.25 per cent due on 23 August, on the same liability you would go through an almost £650 per annum interest hike.
If the Bank of England increases the base rate to 2.5 per cent at the end of 2022, HMRC will have to follow suit and increase their interest rates as well.
The key takeaway is that you should exercise a great deal of caution if you are considering a TTP arrangement with HMRC.
Despite this arrangement being heavily publicised at the start of the COVID-19 pandemic, those who have this arrangement could end up paying more than anticipated.
Taxpayers are wise to settle as much of their outstanding tax liability as they can afford.
If you need advice on managing your tax liabilities, contact us today.
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