Any tax paid after the due date will carry interest. This is written in statute.
Interestingly late paid interest on corporation tax is tax deductible whilst interest on other taxes (income tax, VAT and capital gains tax to name just 3) is not.
Many taxpayers do see paying their tax late as a cheaper alternative to short term or overdraft borrowings but they should be made aware that the rate of interest charged is geared to the Bank of England base rate. Whenever there is a change in the base rate there will be a change in the rate of interest on late paid tax.
The most recent change in the base rate has resulted in such an increase and with effect from 21st August 2018 the rate has increased from 3% to 3.25%.
There have been rumours of further interest rate rises and as such we can expect there to be increases in the rate of interest charged on late paid tax. It may still be a cheaper alternative than other forms of lending but it is becoming apparent that H M Revenue & Customs do not like this line of thought and are becoming increasingly more resistant to time to pay arrangements where this is perceived to be the taxpayer’s angle.
As always if you believe any of this impacts you please do not hesitate to contact the team here at LBW.
Last modified on