Though only one facet of tax disputes, late payment interest is often overlooked. But the increasing length of HMRC enquiries and tax appeals and the return to pre-global financial crisis interest rates have brought late payment interest into sharper focus. When should you think about it? What should you do about it?
In most cases, late payment interest is automatically charged at the Bank of England base rate plus 2.5 percent. Currently this is 7.75 percentopens in a new tab, versus only 2.6 percent at the beginning of 2022. Interest accrues from when the tax was due to be paid and not, for example, the date on which HMRC open an enquiry or make an assessment. Accordingly, a significant amount of interest can accrue, especially in a long-running or high-value dispute.
No interest will be due if, ultimately, it is agreed or decided that there is no liability to the disputed tax. However, this does not mean that challenging that liability should be the taxpayer or adviser’s sole focus. Appropriate consideration needs also to be given to interest as well as penalties, legal and other professional costs, and future compliance costs.