Interest rate on late payment of income tax rises to highest level in 14 years
Interest rate on late payment of income tax rises to highest level in 14 years
From 6 January, the interest rate charged by HMRC for late tax payment of income tax will rise to 6%, more than double the rate charged in January last year, and the highest level in more than 14 years, accountancy and business advisory firm BDO has warned.
With the 31 January deadline looming for filing a tax return and settling your tax bill for 2021/22, BDO is warning taxpayers who fail to file and pay on time that they will face penalties as well as punitive interest rates on tax that remains unpaid after it is due.
Late filing penalties
If you fail to submit a return by the filing date, there is an automatic £100 penalty. If the return is more than three months late, HMRC can impose a £10 daily penalty, with even higher penalties charged when the delay reaches six- and 12-month milestones.
Late payment penalties
In addition to late filing penalties, HMRC can impose late payment penalties equal to 5% of the unpaid tax 30 days after the payment was due. A further 5% of unpaid tax can apply 6 months after the payment was originally due, and an additional 5% of unpaid tax 12 months after the payment was originally due.
Interest rates on late payment of income tax
Late payment interest is set at base rate plus 2.5%. From 6 January 2023, the rate rises to 6%. This compares to a rate of just 2.75% in January 2022. The last time the rate rose to above this level was in November 2008 when the rate reached 6.5%.
A taxpayer who files their return and owes £30,000 on 31 January 2023 but does not pay the tax and the late payment penalty until 1 June 2023 will find their total bill has risen to just over £32,100 – and they will be paying just under £300 more interest to HMRC than the same tax debt paid late in 2022 would have cost them.
Dawn Register, Head of Tax Dispute Resolution at BDO said:
“Taxpayers who file and pay late this year may be in for a shock. In addition to late filing penalties and late payment penalties, which can quickly add up, the interest rate applied by HMRC for late payment is at its highest level in almost a decade and a half.
“If you are going to struggle to pay your bill on time, agreeing a formal ‘time to pay’ arrangement with HMRC before the penalty is charged will mean as long as you stick to the instalment payments agreed, the penalty won’t be charged. However, interest will be applied.
“The current high interest rate for late payment can also apply to valid penalties not paid on time so this should provide some extra motivation for people to file and pay their tax promptly this year.”
ENDS
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