The UK’s tax authority, His Majesty’s Revenue and Customs (HMRC), has announced a reduction in interest rates for late payments and overpayments of taxes: The new rates are 7% for late payments and 3.5% for overpayments.
This development follows a recent decrease in the Bank of England’s base rate from 4.75% to 4.5%. HMRC’s interest rates are legislated and linked directly to the Bank of England’s base rate. The late payment interest is calculated as the base rate plus 2.5%, while the repayment interest is the base rate minus 1%, with a minimum floor of 0.5%.
The overpayment interest rate remains at 0.5% even if the base rate falls below 0.5%, until the Bank of England’s base rate exceeds 1.5%, at which point repayment interest will increase accordingly.
The distinction between late payment and overpayment rates is consistent with practices used by other global tax authorities and mirrors the difference between interest rates on loans and deposits in commercial banking.
