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A new minimum interest rate of 0.5% on tax repayments is to be introduced by HMRC. This means that in future interest will still be payable even when the Bank of England base rate falls below 1.5%.
The Government is also planning to introduce changes to the current regime, to deliver greater transparency in the way that rates are set and applied, paving the way for the implementation of full interest harmonisation, which was legislated for in this year’s Finance Bill.
HMRC will recalculate their rates after the September meeting of the Bank of England monetary policy committee (MPC), using the new formulae provided in the regulations. Harmonisation will result in a change to some of the department's interest rates even if there is no change in the base rate announced by the MPC.
Interest charged on late payments of tax will be the Bank of England base rate plus 2.5, and for interest paid on overpayments the rate will be the Bank of England base rate minus 1.
The new rates and the minimum repayment rate take effect 13 working days after the MPC meeting.
