Posted: 24 / 06 / 2023

Article by: Melanie Donegan, Head of Tax – Manchester
Image: acediscovery, CC BY 4.0, via Wikimedia Commons

 

With inflation failing to come down, the Bank of England has increased the base rate for the 13th month in a row to 5%; the highest it has been for 15 years.

One aspect of this that hasn’t been reported on as much is the news that HMRC interest rates are linked to this base rate, being set in legislation at 2.5% above.

HMRC’s current rate increased from 1st June 2023 to 7%, and it has been announced that HMRC will increase this by 0.5% from 3rd July 2023 for quarterly payments and 11th July 2023 for non-quarterly payments. Last time HMRC’s late payment interest was this high was January 2008, around the same time as the previous recession.

Late payment interest is payable on late tax bills covering income tax, National Insurance contributions, capital gains tax, corporation tax, stamp duty land tax, stamp duty and stamp duty reserve tax.

 

So, what does this mean for taxpayers?

For those of you who pay your taxes under self-assessment, your second payment on account for the tax year ended 5th April 2023 is due on 31st July 2023.

You should ensure you have the funds to pay this liability by the due date to avoid these high interest charges. Also, bear in mind that where your 2021/22 liability is also outstanding, a further penalty of 5% will become due if not paid by 1st August 2023.

 

What if your income has decreased?

If you believe your tax liability for 2022/23 will be lower than the tax you owed for 2021/22, early preparation of your 2023 tax return means we can reduce the payment you are due to make on 31st July 2023. So that we can calculate your tax position and submit your tax return before the July payment deadline, your advisor must receive your tax return information by 10th July 2023. This allows for sufficient time to process it.

Other benefits of preparing your tax return early including advanced warning of forthcoming liabilities, as well as peace of mind!

 

What does this mean for companies?

Where companies fall within the quarterly instalment payment (“QIPS”) regime, careful consideration is required to ensure the right amount of tax is paid by the relevant due dates.

A slightly lower late payment interest rate of Bank of England base rate plus 1% applies from the due date of the instalment until the earlier of the date on which full payment is made and the normal due date (i.e. nine months and one day after the end of the accounting period). The normal late payment interest applies after the nine-month due date (i.e. Bank of England base rate plus 2.5% as discussed above).

If you are unsure of whether your company(ies) should be paying QIPS, particularly given the recent changes to the associated company rules, or are unsure of the amount that should be paid each quarter, do reach out to our corporation tax team.

 

How can we help?

HMRC have recently become more aggressive in debt collection and referring debts to collection agencies, which is often a worrying time for taxpayers.

If you cannot meet the liability straight away or have been denied a ‘Time to Pay’ arrangement with HMRC, we can refer you to our funding team. Our Funding team have access to the full market and can arrange a plan that suits your circumstances with manageable payment terms.

 

What if you have overpaid your taxes?

The good news is that HMRC do pay repayment interest on any credit balances; unfortunately, this is only 1% below the Bank of England base rate.

For further information, please contact either myself for Personal Tax, Sarah Richards for Corporation Tax or Leyton Jeffs for Funding.