HMRC is raising late payment interest to 7% on 31 May following the Bank of England's (BoE's) recent base rate increase.

The rise means that interest on outstanding tax bills has doubled since May 2022 and is now at its highest level since the beginning of the 2008 financial crisis.

The repayment rate - the interest HMRC pays to taxpayers who settle their bills early or overpay - is also increasing from 3.25% to 3.5%.

Meanwhile, the interest charged on underpaid quarterly instalments for corporation tax self-assessment increased from 5% to 5.25% on Monday (22 May). Interest on overpaid quarterly instalment payments also rose from 4% to 4.25%.

Late payment and repayment interest apply to various taxes including income tax, capital gains tax, National Insurance contributions and stamp duty land tax.

HMRC calculates late payment interest by adding 2.5% to the BoE's base rate. Repayment interest is the base rate minus 1%, with a lower limit of 0.5%.

According to HMRC, the late payment interest rate encourages prompt payment and "ensures fairness" for those who pay on time, while repayment interest compensates taxpayers fairly for the loss of money.

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