This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
HMRC has increased the interest you owe them if you make a late tax payment - these changes apply to everyone, including landlords.
Late payment interest set by HMRC is the base rate plus 2.5 percent. Since the Bank of England (BoE) hiked the base rate to 5.25 percent, the late payment interest rate now stands at 7.75 percent.
Repayment interest is the extra amount they pay you when an overpayment occurs. HMRC has set repayment interest as the base rate minus 1 percent, so it now stands at 4.25 percent, although it does have a ‘minimum floor’ of 0.5 percent for periods where the base rate is particularly low.
These changes took effect from the 14th of August 2023 for quarterly payments, and will take effect from the 22nd of August 2023 for non-quarterly payments.
This is particularly important for landlords as the late payment charges (and repayment interest) apply to income tax (e.g. rental income), stamp duty land tax, capital gains tax, and corporation tax.
The late payment interest of 7.75 percent is the highest it’s been since 2001.
One criticism of these changes is how late payment interest is applied to all late payments – even if only one day late – while repayment interest is most likely paid to you from 31 January following a tax year. Robert Salter, tax technical consultant at Blick Rothenberg accountancy firm, had this to say:
Given that most tax advisors and accountants have seen a significant increase in the number of taxpayers who are waiting for six or nine months for HMRC to issue refunds, it is difficult not to question whether these delays – usually explained on HMRC’s side as ‘additional security checks’ – are just a deliberate policy on HMRC’s part to gain additional revenues as part of the low repayment supplement rate paid to taxpayers.
HMRC has released a statement following the changes to clarify the rates for late payment and repayment interest:
The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits. The rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay.
It is essential that if you are in the Private Rental Sector as a landlord, you understand how much of your rental income is taxable, how much Stamp Duty Land Tax you should pay when you purchase, and how much capital gains tax you owe if you sell a property.