HMRC has increased the rate of late payment interest for the second time in two months. In light of the reprieve for late filing penalties, do you need to worry?
In line with the recent increase in the Bank of England base rate, late tax payments will be subject to interest at a rate of 3% (currently 2.75%) per annum from 21 February 2022. The increase applies from the earlier date of 14 February for payments that are made in quarterly instalments. This is the second time HMRC has increased late payment interest this year, meanwhile the repayment interest rate, i.e. on money owed to you by HMRC, has remained at 0.5% for over twelve years.
At the start of 2022 HMRC announced that late payment penalties would not be charged on outstanding 2020/21 tax liabilities, providing the tax is settled by 1 April 2022. However, there is a hidden, avoidable cost because late payment interest will accrue from 1 February 2022 until the payment is made. For example, delaying payment of a £10,000 tax liability until 31 March 2022 will cost an extra £45 in late payment interest. The only way to avoid the increase is to pay any outstanding liability by 21 February.