Interest rate increase may affect self assessment payments

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Following the Monetary Policy Committee decision to increase the bank rate to 0.5%, HMRC has announced increases to interest charged on late paid tax. ICAEW’s Tax Faculty highlights what is changing and from when.

As HMRC interest rates are linked to the Bank of England base rate, the increase in the base rate from 0.25% to 0.5% on 3 February 2022 has triggered an increase in rates for late payments.

HMRC has announced that the rate will increase with effect from 14 February 2022 for late quarterly instalment payments and that late payment interest for other late payments will increase from 21 February 2022.

The rate of interest on unpaid installments of corporation tax liabilities is calculated as base rate plus one, so will increase to 1.5% from 14 February 2022.

The rate of interest for the late payment of other taxes is calculated as base rate plus 2.5, so will increase to 3% from 21 February 2022.

This means that self assessment taxpayers who missed the 31 January 2022 payment deadline will find their late payment interest costs rising if their tax is still unpaid on 21 February 2022.

The rate of interest paid by HMRC on the overpayment of tax remains unchanged at 0.5% as this rate is calculated as the higher of:

0.5%; and
base rate minus one.

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