The announcement follows previous interest rate hikes earlier in the year and will increase the current late payment interest rate by 0.25% to a new rate of 3.50%. The new rate will be applied to late payments of Income Tax, National Insurance contributions, Capital Gains Tax, Stamp Duty Land Tax and Stamp Duty Reserve Tax from 24 May 2022.

Interest rates for the late payment of Corporation Tax have also been increased to 3.5% which is effective from 24 May 2022 for non-quarterly instalment payments, and 16 May for quarterly instalment payments.

There has been no change to the interest rate that HMRC will apply to overpayments of tax, which remains at the lower rate of 0.5%. The repayment interest rate is set at the Bank of England’s base rate minus 1%, with a lower limit of 0.5% as outlined in legislation.

The latest announcement puts further pressure on taxpayers to settle their tax bill promptly. If you find yourself faced with a tax bill you cannot pay, the next step should be to contact HMRC and set up a ‘Time to Pay Arrangement’ which allows for tax liabilities to be spread over a longer time period.

Time to Pay Arrangements can be set up for tax bills of less than £30,000 through your Government Gateway account provided the following conditions apply:

• The tax liability is no more than 60 days overdue
• The debt will be settled within the next 12 months
  

If you owe HMRC more than £30,000 or need longer than 12 months to pay, you will need to contact them through the Self Assessment Payment helpline. A HMRC officer will then take further information from you in order to set up the payment plan based on your personal circumstances.

Once an arrangement has been agreed and set up, provided you continue to settle the instalments in accordance with the agreement, HMRC will not usually impose any further penalties or surcharges for the late paid tax. Whilst this is welcome news for those struggling to settle outstanding tax, we would still recommend that liabilities are settled on the relevant due date where possible as interest will continue to be charged on the outstanding debt.

If you find yourself struggling to meet tax payment deadlines, please speak to your contact at Rickard Luckin who will be happy to discuss the options available to you. They will also be able to assist you with ways in which you may be able to improve your tax position with some simple tax planning steps.