Late Tax Payment Interest Rates Rise: What It Means for HMRC Debts

This update is for UK taxpayers with unpaid tax who want to understand whether the late payment interest rate rise applies to their situation and what it means in practice.

When HMRC increases the interest rate on late-paid tax, the cost of leaving balances unpaid rises immediately. Understanding whether the higher rate applies to you is important, particularly if tax remains outstanding or is being paid over time, something a tax advisor in London would typically review as part of ongoing tax management.

What the Interest Rate Rise Means for Unpaid Tax

Where tax remains unpaid, HMRC charges late payment interest at the prevailing statutory rate. When that rate increases, interest accrues more quickly on outstanding balances, increasing the overall cost of delay.

The higher rate applies automatically to unpaid tax from the relevant effective date. It is not discretionary and continues to accrue until the underlying tax is settled in full, a point often highlighted in self assessment advice in London when reviewing late payment risks.

Increase in HMRC Late Payment and Repayment Interest Rates Following Bank Rate Rise

The Bank of England’s Monetary Policy Committee (MPC) met on 2 February 2023 and voted 6-3 in favour of raising interest rates by 50 basis points to 4% in a move to try and continue to tackle upward pressures on inflation. This is the tenth time in a row that the MPC has increased interest rates with rates now the highest they have been since November 2008.

This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest on increased by 0.5% to 6.50%.

These changes came into effect on:

• 13 February 2023 for quarterly instalment payments
• 21 February 2023 for non-quarterly instalments payments

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on also increased by 0.5% to 3% on 21 February 2023. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

In Practice – Common Misunderstandings About Interest Rate Changes

In practice, we often see taxpayers assume that interest rates only affect new debts or that contacting HMRC stops interest from running. In reality, interest usually continues to accrue on unpaid tax, even where payment discussions or arrangements are ongoing.

For clear, practical advice, experienced accountants in Kingston upon Thames support taxpayers across nearby areas such as Hampton Wick and Norbiton when reviewing unpaid tax positions and related interest charges. At CIGMA Accounting, our team can help you determine whether the higher interest rate applies in your circumstances and what steps may be appropriate next.

Check Whether the Higher Late Payment Interest Rate Applies to You

Not every taxpayer will be affected in the same way by an interest rate rise. A short review can help confirm whether the higher rate applies to your unpaid tax and what steps may help limit further interest.