HMRC to raise late payment interest rates from next week following Bank of England vote

HMRC provide advice on self-employed tax returns

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HMRC has confirmed it will increase late payment interest rates in light of decisions made by the Bank of England. Last week, the central bank elected to raise interest rates in response to rising inflation and economic uncertainty.

The Bank of England Monetary Policy Committee voted on December 16 to increase the base rate to 0.25 percent from 0.1 percent. This will in turn have an impact on how retail banks and other financial institutions act.

HMRC explained its own interest rates are linked to the Bank of England base rate. As such, HMRC interest rates will rise.

HMRC said: “As a consequence of the change in the base rate, HMRC interest rates for late payments will increase.

“These changes will come into effect on December 27, 2021 for quarterly instalment payments and January 4, 2022 for non-quarterly instalments payments. Repayment interest rates remain unchanged.”

Full details on these increases can be found on the Government’s website.

Taking note of these changes may prove to be essential for many as new research shows Britons often leave it to the last minute to get their tax affairs in order.

Today, analysis from untied showed over 3,000 self-assessment tax returns are expected to be filed on Christmas Day this year, plus a further 17,000 on New Year’s Day and over 700,000 on January 31.

The statistics, which were released to untied by HMRC under the Freedom of Information Act, also showed that, in a typical year, around 310,000 people are expected to file their tax returns between now and the end of December.

This means only 54 percent of individuals will have completed their mandatory self-assessment forms before the start of 2022, leaving “an incredible” five million people to file in the last four weeks before the deadline of midnight on 31 January.

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Kevin Sefton, CEO of untied, commented: “After a difficult year, we really hope that people do take some time to themselves over Christmas. Still it’s clear that some people see it as a good time to put tax ahead of telly and turkey. It gives them confidence, comfort and control going into the new year.

“Nearly 12 million people need to file an annual tax return and it’s astounding that year after year, almost five million people leave their paperwork until the last month before the deadline. HMRC figures indicate that every day in January between 30,000 and 700,000 people scramble to submit their forms in time. Nearly a million miss the deadline and get a penalty.

“Our advice is simply to get started and fill in what you know as soon as possible. That will give you momentum.

“If you’re using untied a lot of this will be done automatically. If it’s your first time, don’t be afraid – there’s lots of support for you. And remember, if you need to contact HMRC for any reason, phonelines through to the helpdesk get busier the nearer to January 31 you are.”

Rising interest rates may be welcome news to savers but following the Bank of England vote, Aegon warned cash savers are set to face the worst post inflation loss in 45 years.

This is because the Bank of England forecasted inflation will increase further to six percent by April 2022.

Steven Cameron, Pensions Director at Aegon, commented: “[The] decision to increase the bank base rate from 0.1 percent to 0.25 percent as a result of rocketing inflation will provide a glimmer of hope to those with significant cash savings.

“However, they shouldn’t be lulled into a false sense of security as inflation, currently sitting at 5.1 percent, is forecast to rise further, peaking at 6 percent in April. If the Bank of England’s prediction is correct, this will see an inflation rate 5.75 percent higher than interest rates, which means by Spring, those in cash could be losing 5.75 percent of their purchasing power over a year.

“Such a high loss for cash savers in ‘real’ terms has not been seen since the late 1970s, or for around 45 years.”

Those with debts are also set to be hit hard by rising rates. Following the vote, analysis from Mazars showed UK households face an immediate increase in interest payments of £556million.

Analysis of Bank of England data showed UK households are currently paying £17.5billion annually in interest payments on floating rate debt that are likely to be immediately impacted by the interest rate rise.

This includes variable-rate mortgages, credit card debt and other unsecured personal lending.

Further increases in the base rate would have a more dramatic impact. If interest rates were to rise by another 0.25 percent, household interest payments would rise by a further £917million. Interest payments would rise further still, to an “eye-watering” £21.2billion – almost £4billion above current levels – should there be a rate increase of one percent.

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