25-08-2022

With the Bank of England’s recent announcements of further increases to the base rate interest percentages, HMRC have confirmed changes to the interest rates to be served on underpayments.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. There are 2 rates:

  • late payment interest, set at base rate plus 2.5%
  • repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)

The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.

The lower limit for repayment interest

The lower limit for repayment interest made sure that taxpayers continued to get 0.5% even when the base rate fell to 0.1%.

Repayment interest will be paid at 0.5% until the Bank of England raises the base rate above 1.5%. Then it will increase with the base rate.

Why repayment and late payment rates are different

The difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

Current late payment and repayment interest rates

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

  • late payment interest rate — 4.25% from 23rd August 2022
  • repayment interest rate — 0.75% from 23rd August 2022

Full details of this and other rates applied in different circumstances by HMRC can be found here:


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Finance and Payroll Manager at Capital City College Group

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