HMRC interest rates

Following the recent cut in the Bank of England base rate from 0.25% to 0.1%, HMRC has announced changes to the rates of interest they charge.  

The new late payment interest rate, applied to the main taxes and duties, took effect from 30 March 2020, when the interest rate was set at 2.75% (reduced from 3.25%). This was the first change since August 2018.

The rate of interest charged on underpaid quarterly instalment payments of Corporation Tax is 1.1% as of 30 March 2020. The rate has been set at 1.75% since August 2018 and was briefly reduced to 1.25% on 23 March 2020 before the latest cut took effect. 

The repayment interest rates applied to the main taxes and duties remains unchanged at 0.5%.
 

Following the recent increase in the Bank of England base rate to 0.75%, HMRC has announced changes to the rates of interest they charge. 

The new rates of interest charged on underpaid quarterly instalment payments of 1.75% (was 1.50%), took effect on 13 August 2018.

The interest rate for all other non-quarterly instalment payments applied to the main taxes and duties that HMRC currently charges, will take effect from 21 August 2018 when the late payment interest rate increases to 3.25% (from 3.00%).

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on remains unchanged at 0.5%.

Changes which were first announced in the 2009 Budget to harmonise interest rates across all HMRC taxes recently became law. These changes fully take effect following the September meeting of the monetary policy committee (MPC) and result in some HMRC interest rates changing even where there was no change in rate announced.

The interest rates charged on late payments by taxpayers will be calculated using the Bank of England base rate plus 2.5% whilst the interest rate on tax repayments will be the Bank of England base rate less 1% (with a 0.5% minimum).

The main changes are as follows:

  • an increase to the repayment rate for quarterly instalment payments and early payments of Corporation Tax (CT) not due by instalments (for accounting periods ending on or after 1 July 1999) which take effect from 21 September 2009
  • an increase in both the late payment and overpayment rates of interest for all other taxes and National Insurance contributions (NICs) which take effect from 29 September 2009

The following table contains a summary of the main changes:

Tax/Duty

Late payments current rate

Late payments new rate

Over payments current rate

Over payments new rate

With effect from
Income Tax, NICs, Capital Gains Tax, Stamp Duties

2.5%

3.0%

0.0%

0.5%

29/9/09
VAT, Excise Duties, Environmental Taxes, Insurance Premium Tax and Custom Duty (**Statutory interest)

2.5%

3.0%

0.0%

**0.5%

29/9/09
CT Quarterly Instalment Payments (QIPs)

1.5%

1.5%

0.25%

0.5%

21/9/09
Inheritance Tax, Capital Tranfer Tax and Estate Duty

0.0%

3.0%

0.0%

0.5%

29/9/09

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Case Studies

The Tax Man

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Business Valuation in Distress

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FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.