Rates of interest are geared to the Bank of England base rate. Following the 13th consecutive increase in the BoE base rate announced last week the new interest rate for late payment of income tax will be 7.5% as from 11 July 2023. It could go higher.
Of course HMRC takes the high moral ground that late payment interest (and penalties) encourage prompt payment of tax and ensures fairness to those who pay their taxes on time. They are quick to point out that when the boot is on the other foot HMRC will compensate taxpayers for loss of use of their money when they overpay. What is not underlined is the fact that there is a significant differential between the rates. For example, the interest payable on overpaid income tax from 11 July will be 4% - a cool 3.5% behind the rate of late payment interest.
What is critical to remember is that under self-assessment it is the duty of the taxpayer to pay the correct amount of tax by the payment date whether or not a formal request for payment is received. All the old chestnuts about missing payment requests have gone ("never received it" ... "must have been sent to my old address" ... "the dog must have eaten it" ... "I thought my accountant was dealing with it"). If payment is late an interest charge will be added automatically.
Actually this becomes somewhat unfair if it is impossible to determine a tax liability by the date of payment. Suppose a valuation is required and negotiations become protracted. "Too bad," says HMRC. There is no wriggle room.
Anyone struggling to pay a tax debt should contact HMRC and negotiate a Time to Pay arrangement - involving affordable monthly options. This will not prevent interest from accruing but late payment penalties can be avoided provided the terms of the arrangement are respected. It is always better to make contact sooner rather than later.
The normal due dates of payment for tax for anyone under self-assessment are 31st January and 31st July.
Of course the secret is keep up to date with one's tax affairs and make adequate provision for tax payments. If the unexpected happens then a call for help is a priority.
