UK taxpayers facing late payment interest hikes

UK taxpayers facing late payment interest hikes

Businesses and individual taxpayers have encountered a number of financial pressures over the past few months and further strain could now be added to some, with HMRC interest rates on late tax payments increasing yet again.  

The interest rates are tied to the Bank of England base rate, which saw another increase on 15 December from 3% to 3.5%. As a result, the late payment interest level for main taxes and duties is now 6% and the repayment interest rate is now 2.5%. These hikes came into force from 6 January 2023 and will impact certain taxpayers who fail to meet the due date.

The increases represent a 3.25% and 2% rise for late payment and repayment respectively. Further detail can be found here. It’s also important to highlight that the late payment interest now applies to VAT for amounts due from accounting periods starting before or after 1 January 2023.

Corporation tax

When it comes to corporation tax, there is a slight difference to acknowledge for those businesses who pay via quarterly instalments. With effect from 26 December, the interest charged on underpaid quarterly corporation tax rose to 4.5% - a 3.25% year on year jump. This could potentially put undue financial pressure on businesses who are also having to come to terms with the standard corporation tax rate rise to 25% from 1 April 2023.

It may seem simple and there are a lot of factors that can interfere with the tax payment process, particularly as businesses grapple with cashflow issues from soaring costs, but there’s now added importance on ensuring efficient management. Businesses need to have strong compliance processes embedded and a cashflow projection in place to have a grasp on outgoings and incomings.

According to a new poll we conducted, 22% of SME business leaders surveyed said they did not have a cashflow projection process in place. A 13-week cashflow projection can be key to spotting any cashflow issues in advance, giving you and your trusted business advisor the time to take proactive action, and seek help and guidance if necessary.

Personal tax

With the 31 January 2023 self-assessment submission deadline fast approaching, HMRC data (as of 16 January 2023) shows that there are 4.3 million individuals who were yet to file their tax return despite HMRC’s attempts to highlight the importance of early completion.

In the past two years, HMRC has not imposed the £100 late filing penalty but there’s no guarantee that this will be the case again for this year’s submissions. For taxpayers who go three months overdue, there is a possible £900 penalty to contend with also.

Anyone who is in a position where they can’t pay the tax owed could be eligible to discuss a Time to Pay Arrangement with HMRC. If going down this route, it’s critical to know finances as HMRC may ask for details of income and expenses of the individual to ensure that payment terms are realistic.

We are here to help

If you have any questions about the late payment interest hikes, or need advice on managing your tax requirements, please get in touch with a member of our tax team or your usual Azets advisor.