A new minimum interest rate on tax repayments of 0.5% means that in future interest will still be payable even when the Bank of England base rate falls below 1.5% HM Revenue and Customs (HMRC), has announced.
The minimum interest rate is part of a number of changes to HMRC’s interest rate to be introduced by the government which are designed to deliver “greater transparency and certainty” in the way that rates are set and applied by the UK tax authority.
The measures pave the way for the implementation of full interest harmonization which was legislated for in this year’s Finance Bill.
The Government announced in Budget 2009 that it would introduce secondary legislation designed to harmonize interest rates for those taxes where HMRC currently charge and pay interest. These regulations came into effect on July 22.
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.
It has been necessary to recalculate the rates for the various taxes and duties because the number of formulae used by HMRC to calculate its interest rates has been reduced.
HMRC will recalculate its rates after the September Bank of England Monetary Policy Committee (MPC) Meeting, which sets the UK base rate, using the new formulae provided in the regulations. Harmonization will result in a change to some of HMRC’s interest rates even if there is no change in the base rate announced by the MPC.
The harmonized rates will be based around the Bank of England base rate and will take effect in response to any changes announced by the MPC after 13 working days.
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