Did you know that if you don’t pay your taxes on time, HM Revenue & Customs (HMRC) can charge you interest on your late payment?
HMRC can use its powers to charge interest on late payments of tax and pay interest on overpayments you’ve made to them. And those rates change from 21/02/2022.
How does interest on late payments work?
If you’re late paying your taxes, HMRC will charge interest from the original due date of the payment until the date payment is received.
This applies to most taxes, the main exception being a rate of 1.25% in respect of late payment of quarterly corporation tax installments, for businesses with taxable profits over £1.5 million.
How are the rates changing in 2022?
From 21/02/2022, the rate on late payments and overpayment is increased to 3.0% p.a. Earlier changes increased the rate to 2.75% from 04/01/2022 and 2.6% from 07/04/2020.
The rate HMRC will pay on refunds and overpayments of tax remains at 0.50%. This 0.50% rate has been in place since 29/09/2009.
What happens if I can’t pay on time?
There may be times where you owe tax and simply can’t pay on time. As long as you agree a formal ‘time to pay’ arrangement with HMRC then the interest rate they charge is relatively low.
Simply not paying, without having any agreement in place, is a bad idea. HMRC may charge you a penalty, on top of charging interest on your late payment. Self-assessment tax, for example, will incur a penalty of 5% of the tax for 2020/21 (due by 31/01/2022) if it’s unpaid by 01/04/2022. There can then be a further 5% (minimum £300) penalty if any tax is still left unpaid by 01/08/2022.
How can we help you manage these payments?
If we’re already calculating your taxes, we’ll advise you of the amount that’s due and the payment deadline, as a matter of course.
If we’re not already acting on your behalf, we can still help. You might be unsure of the deadlines for the taxes, or need help working out what you’ll need to pay. We’ll help you run projections to check if you have the funding to make these payments. And we can liaise with HMRC to put ‘time to pay’ arrangements in place.
When it comes to tax, it’s always best to talk to us sooner rather than later.