New interest rate for late payment of taxes

One small point buried in last autumn’s budget was that HMRC would start charging interest at 4% above base rate for late payments of most taxes from 6 April 2025.

This means that, from yesterday, interest is accruing at 8.5% on any late payments.

HMRC’s view is that interest is recompense for the loss of use of money over time, and not a penalty. However, if a taxpayer is due a repayment of tax, HMRC will only pay interest out at 1% below base rate. The current recompense to taxpayers is therefore just 3.5%, with no clear justification for the 5% differential (other than a comment by HMRC that the difference in rates is line with the policy of other tax authorities worldwide).

What does this mean for business?

• systems for timely tax compliance are more important than ever as even innocent historic errors could result in significant interest expense – consider whether you have the right processes in place.
• there is even greater benefit to resolving disputes with HMRC at the earliest possible stage – consider how to accelerate progress from the earliest stage of any enquiry or compliance check.
• HMRC is not incentivised to agree liabilities or process repayments quickly – it may become necessary to apply appropriate pressure.
• it might be sensible to make payments on account of tax in some circumstances to stop interest from accruing – weigh up the pros and cons depending on your specific fact pattern.
• there are some circumstances where interest charges can be challenged – either by requesting HMRC exercise their discretion to waive interest or by bringing a public law challenge.

Our contentious tax experts are on hand should you need any help.