HMRC Late Payment Interest Rate Hike Will Hurt Business

As confirmed in Rachel Reeves’ Autumn Budget, HMRC’s late payment interest rate increase to 4% over Bank of England base rates will start on 6 April 2025.  The difficulty is that with the government borrowing more than anticipated, the £ is weaker and the Bank of England may be forced to keep interest rates higher for longer to support the £.

Currently,

• late payment interest is set at base rate plus 2.5% i.e., 7.25% pa whereas
• repayment interest (when they owe you) is set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’) i.e., 3.75% pa

4% over base penalties are a staggering increase on late payment penalties and if Bank of England keeps base rates at 4.75%, this will mean

• late payment interest is set at base rate plus 4.0% i.e., 8.75% pa whereas
• repayment interest (when they owe you) is set at base rate minus 1% i.e., 3.75% pa.

Comment

Labour, the party for business growth?  We think not.  This is staggeringly unfair, and we fear for any business that struggles with VAT returns, corporation tax and income tax (self employed) when those massive employer national insurance contributions start combined with higher corporation tax rates and now late payment rates that may be more than double the rate that HMRC pays when it owes us money i.e., 5% less.

We are likely heading for recession, and our best guess is that taxes will have to rise even more if Reeves wishes to stay within her fiscal rules of no more borrowing to fund larger public spending.  It is an experiment that is going to fail.  We must all pay higher taxes for better funded public services and not just expect businesses and property/landowners to ‘foot the bill’.