HMRC Interest Rates and Penalties for Late Filings – What You Need To Know

With the interest rates in banks changing, HMRCs interest rates for late payment and repayments of tax have also changed.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate.
There are 2 rates:

  • late payment interest, set at base rate plus 2.5%
  • repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)

The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.
The repayment interest rate compensates taxpayers fairly, when they overpay or pay early, for loss of use of their money.

As at the time of this article, the current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

  • late payment interest rate — 5.50% from 22 November 2022
  • repayment interest rate — 2.00% from 22 November 2022

These rates apply for Corporation Tax, Self Assessment, Income Tax, Capital Gains Tax, VAT, Stamp Duty and National Insurance.

VAT Specifics – starting on or after 1 January 2023

The default surcharge is being replaced with new penalties for late submissions or payments.

Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.

Late Submission of VAT

For each VAT Return you submit late you will receive one late submission penalty point.
Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

Submission frequency Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

The points are re-set if returns are submitted and paid on/before the due date for the period of compliance, and all historic returns have been received by HMRC.

Late Payment of VAT 

Late payment INTEREST will be charged at 2.5% + Bank of England base rate – From 1st January 2023

Late payment PENALTIES will be charged depending on when you make payment – From 1st January 2024

Paid up to 15 days late – No Penalty
Paid between 16 and 30 days late – 2% penalty based on the amount owed at day 15
Paid 31 days or more late – there will be the initial 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance.

Repayment Interest

HMRC will pay you repayment interest on any VAT that you are owed.

This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.

Repayment interest, set at base rate minus 1%, with a lower limit of 0.5%

Overseas companies registered in the UK

Effective from 1 August 2022, overseas entities are required to provide greater transparency over their beneficial ownership.

Overseas entities transacting with property or land in the UK must now register with Companies House and identify their beneficial owners – Deadline 31st January 2023

If entities do not register with Companies House, they will not have an overseas entity ID and will not be able to register a change of interest at the relevant land registry. This will prohibit that entity from buying or selling property or land in the UK.

Overseas Entity: This is a legal entity, such as a company or other organisation, that has legal personality and is governed by the law of a country or territory outside the UK.

If you would like to discuss any of the points mentioned in this article, please call the office on 0207 433 6940 and we will be happy to assist with your queries.