Interest Rates for Late and Overpaid Taxes – New calculation methods 12 August 2009Wednesday, July 29th, 2009
HMRC first put forward proposals to harmonise the methods by which interest is charged across tax regimes in June 2008. Following consultation, HMRC proposed
- to use the Bank of England Base Rate instead of the “reference rate”,
- to track changes in the Bank of England Base Rate, even if that means changing the interest rates monthly, and
- to continue with separate rates for late payments and overpayments.
Two initial changes, which did not require changes to primary legislation, were introduced in January 2009, namely measures to
- allow changes to interest rates to be made 13 working days after the day on which the meeting of the Bank of England Monetary Policy Committee is held, and
- prevent HMRC interest rates falling below zero.
The further legislative changes to achieve harmonisation across all taxes have been made by means of provisions in the Finance Act 2009. Sections 101 to 105 and Schedules 53 and 54 provide HMRC with a single set of powers for charging interest on underpaid tax and to paying interest on overpaid tax.
The remaining changes, which are effective for income tax and most other direct and indirect taxes, are given effect by means of the Taxes and Duties (Interest Rate) (Amendment) Regulations 2009 from 12 August 2009. The changes are as follows:
- the “reference rate”, on which the interest rates for late and overpaid taxes are based, is the official bank rate determined by the most recent meeting of the Monetary Policy Committee of the Bank of England
- the interest rate charged in cases of
- unpaid tax is found by the formula “reference rate + 2.5”
- overpaid tax is found by the formula “reference rate – 1”, with a minimum rate of 0.5%.
Taxes and Duties (Interest Rate) (Amendment) Regulations 2009
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