HMRC Late Payment Interest and making Payments on Account

Late payment interest applies to overdue Income Tax, National Insurance Contributions, Capital Gains Tax, Corporation Tax, VAT and various other duties and taxes due to HMRC. This interest accrues daily from the original date the tax/duty was due until the date it is paid.

Late Payment Interest Rates

It was announced on the 2 May that HMRC would cut their late payment interest rate from 8.5% to 8.25%, in accordance with the Bank of England’s decision to cut its base rate from 4.5% to 4.25% on the same day. Despite this slight drop, the new rate remains relatively high and is determined by adding 4% to the basic rate of interest set out by the Bank of England.

Interest can therefore mount up very quickly. When it accrues over a number of years – where there is a tax avoidance settlement for example – the interest can be significant. We have seen examples where the interest is almost as high as the underlying tax.

Making Payments on Account

An individual can prevent late payment interest continuing to accrue by making a payment on account (“POA”). This can be a tricky subject to raise with our clients, as they often assume that by making a POA, any ongoing disagreement with HMRC on the disputed liability is automatically ceded in HMRC’s favour. This is not the case however, a POA is simply a means to limit a client’s liability to interest should additional tax ultimately become due and payable.

Loan Charge Review Implications

The government announced a new review of the Loan Charge in January this year. As a result, HMRC have given taxpayers in the process of settling their Disguised Remuneration/Loan Charge liability the option to “pause” the ongoing settlement process, pending the outcome of the review. The scope of the review suggests any recommendations will be limited to facilitating settlement rather than limiting the impact of the Loan Charge itself. On this basis we continue to recommend that where clients have available funds, they limit their potential liability to interest by making a POA.

WTT’s View on HMRC Settlements

The Tax Investigations team at WTT are experienced in HMRC investigations, escalating cases to litigation where appropriate, as well as guiding clients through settlement negotiations with HMRC. If you are impacted by the Loan Charge or have any ongoing HMRC enquiries, WTT can offer guidance throughout the entirety of the process, aid in ensuring settlement calculations are accurate and facilitate the making of a POA where appropriate.

Finally, although interest is a statutory charge, meaning a HMRC officer does not have the authority to mitigate it, in certain circumstances interest mitigation can be sought. A recent case (Nutall v HMRC [2022]) rendered all interest charges would be mitigates as it was deemed the extent of the delays by HMRC throughout the enquiry qualified as an “abuse of process”.