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HMRC have announced a new minimum interest rate on tax repayments of 0.5%, which means that in future interest will still be payable even when the Bank of England base rate falls below 1.5%.

The Government will also be introducing changes to the current interest rates regime, designed to deliver greater transparency and certainty in the way that rates are set and applied. This will pave the way for the implementation of full interest harmonisation which was legislated for in this year’s Finance Bill.

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 Government announced in Budget 2009 that it would introduce secondary legislation designed to harmonise interest rates for those taxes where HMRC currently charge and pay interest. These regulations came into effect on 22 July 2009 and introduce changes to the way that HMRC calculates its interest rates.

HMRC will recalculate its rates after the September Monetary Policy Meeting (MPC) using the new formulae provided in the regulations. Harmonisation 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 harmonised rates will be based around the Bank of England base rate and will change in response to any changes announced by the Monetary Policy Committee 13 working days later.