From 06 April 2014, HMRC will charge in-year, rather than annual, interest on all unpaid:
- PAYE tax, Class 1 National Insurance, and Student Loan deductions including specified charges (estimates HMRC makes in the absence of a PAYE submission)
- Construction Industry Scheme (CIS) charges
- In-year late filing penalties, which start from October 2014
- In-year late payment penalties, which will be charged automatically from April 2015
HMRC will also charge interest on underpayments that arise because of adjustments reported on Earlier Year Updates submitted in respect of tax year 2014-15 onwards.
For annual payments such as Class 1A and Class 1B National Insurance Contributions HMRC will continue to charge interest on any amount which remains unpaid after the due date.
How can you avoid an interest charge?
To avoid an interest charge you should pay by the due date the difference between the following:
- what you report on your Full Payment Submission(s) (FPS) received by the 19th of the month that follows the end of the tax month it relates to, together with any CIS charges for that tax month
- any deductions reported on an Employer Payment Submission (EPS), again by the 19th of the month that follows the end of the tax month it relates to.
What happens if I need to correct an FPS during the tax year?
HMRC bases your charges on the information you have sent us. If after you have sent an FPS you need to correct it, you can do this on your next FPS.
However, if HMRC receives the corrected FPS after the 19th following the end of the tax month it relates to, the correction will be included in the following month’s charge. In these circumstances, the amount payable for the tax month is the amount actually reported by the 19th (rather than the corrected amount).
Will HMRC also pay interest on overpayments in-year?
Yes. HMRC will apply repayment interest where you make a payment and the charge is then reduced resulting in an overpayment which is either reallocated to a later charge or repaid.
How will interest be calculated?
HMRC will charge interest from the date a payment is due and payable to the date it is paid in full.
For 2013 to 2014 HMRC will charge interest on any amount due in 2013 to 2014 still which is still outstanding at 19/22 April 2014, including adjustments reported on Earlier Year Updates. Interest will be charged from 19/22nd April 2014, regardless of which month of 2013 to 2014 the payment should have been made.
For 2014 to 2015 HMRC will charge in-year interest each month on any late payment, starting from 19 May 2014.
Current interest rates are:
The current late payment and repayment interest rates applied to the main taxes and duties that HM Revenue & Customs (HMRC) currently charges and pays interest on are:
- late payment interest rate – 3.0 per cent from 29 Sepetember 2009
- repayment interest rate – 0.5 per cent from 29 September 2009
More information on interest can be found here: hmrc.gov.uk/rates/interest.htm
Specific details of when interest is charged from and the date it is charged to are as follows:
| Charge | interest charged from | Interest charged to |
| PAYE tax, Class 1 National Insurance charges, Student loan deductions and Construction Industry Scheme payments | 19th of relevant month/quarter for all cheque payments22nd of relevant month/quarter for all electronic payments | Date payment made in full |
| Earlier Year Update | 19th April for all cheque payments22nd April for all electronic payments | |
| Penalties | Relevant due date of the penalty charge | |
| Class 1A NIC charges | 19th of July for all cheque payments22nd of July for all electronic payments | |
| Class 1B NIC charges | 19th of October for all cheque payments22nd of October for all electronic payments |
How will you know what you have been charged in interest?
HMRC’s will be regularly updating your Business Tax Dashboard to show the amount of any interest charged or repayment that is building up or due as follows:
- Late Payment Interest (due or paid) will appear at the bottom of the month in which the interest charge was made
- Accruing late payment interest will appear at the bottom of the current tax month. Please note that Accrued interest is only a guide to what may be due
- Repayment Interest to be paid will appear at the bottom of the current tax month
- Repayment Interest already paid will appear at the bottom of the tax month in which it was repaid. For more detail, you can select a link from these items to a breakdown showing more detail about it.
The Business Tax Dashboard will show interest as accruing from the 19th of each month. If you pay electronically you do not need to worry if you see an accrued interest entry between 19th and 22nd of a month. Once HMRC receives the electronic payment, the calculation will correctly use the 22nd as the due date, and any interest charge generated between the 19th and 22nd will be cancelled.
To pay an interest charge, please use your interest charge reference – this starts with an X and is 14 characters long. If you do not have this please use your PAYE Accounts Office reference and use one of the payment methods outlined in http://www.hmrc.gov.uk/payinghmrc/getright.htm
How will HMRC calculate interest on a charge that you disagree with?
Whilst HMRC investigates any amount you believe not to be due, you will be able to see the amount of interest building up on the Business Tax Dashboard.
HMRC will only seek payment of any interest due once the amount due to be paid is agreed and settled.
Is there a right of appeal?
There is no right of appeal against interest charged but, exceptionally, the matter may be referred for review.
What if I can’t pay?
If you think you will have difficulty paying by the due date you should follow the Problems paying HMRC: advice for businesses, individuals and tax agents guidance at hmrc.gov.uk/payinghmrc/problems/cantpay.htm
HMRC may be able to allow time to pay. Interest will still apply to all late payments apart from interest charges themselves, but if you apply for time to pay before the due date for payment, you may avoid late payment penalties.
Further information
For full guidance on reporting PAYE in real time go to hmrc.gov.uk/payerti/index.htm
Source: HMRC