United Kingdom and Isle of Man – Change to interest rates applied to late VAT payments and overpayments.

In the UK, HMRC charge late payment interest from the first day that the VAT payment is due until the day it is paid in full.

Interest is charged at the Bank of England’s base rate plus 2.5%.

As a result of the Bank of England increasing its base rate from 4.25% to 4.5%, HMRC will impose 7% interest to late payments from 31st May 2023.

Interest on repayments is set at the Bank of England’s base rate minus 1%, therefore with effect from 31st May 2023, 3.5% interest will apply to any overpayments.

The above interest rates will also apply to the Isle of Man, due to the fact the Isle of Man has an agreement with the UK to keep the management and administration of VAT and other indirect taxes aligned with the UK.