The Bank of England Rate and The Unseen Effect

Unless you have had your head under a rock for the last eighteen months, you will of course be aware of the rises in the Bank of England Base Rate.  Indeed, the last fourteen times the Monetary Policy Committee have met the rate has risen, with the current rate (5.25%) at its highest since the early months of 2008 when Basshunter (nope me neither) were Number 1 in the UK and Novak Djokovic was on his way to winning his first Grand Slam Title.

One unreported effect of these rises in the base rate (something which will no doubt come up in Billy’s next appraisal) is the impact this has on the rate taxpayers pay to HMRC on late payments.  HMRC’s late payment interest is set at base rate plus 2.5%, which means it now sits at 7.75% having risen to that level last week, as the rise in the HMRC rate is always delayed by a couple of weeks.

The latest analysis from HMRC states that the increase in interest rates will make it harder for taxpayers to clear debts owed to HMRC – well we hope that wasn’t a report commissioned and paid for by Johnny Taxpayer!  The report also indicated the majority of tax debt is owed by small and medium sized businesses.

The balance outstanding on HMRC’s ledgers as at 30 June 2023 was £44.5billion, down from £45.9billion at the end of March this year but higher than the £42billion owed at 30 June 2022.  One would assume some seasonal fluctuations in the figures given the self-assessment deadlines of 31 January and corporation tax due 9 months after common year ends in March and April falling due (and hence overdue) in December and January.  Once those fluctuations are accounted for it appears the number is on the rise and to give context to these numbers, the figures for January 2020 (pre pandemic) was £16billion but was £67billion in August 2020.

Of the £44.5billion owed to HMRC, approximately £5.7billion is currently subject to time to pay arrangements (“TTP”).  These TTPs represent 912,000 taxpayers but when compared to the £2billion owed by 647,000 taxpayers in TTPs in March 2020 you can see the average amount in a TTP has risen from £3,000 to £6,250.  The rise in the interest rate means the TTP will last longer or the payments required will need to increase and may make it no longer viable, with the knock-on effect on the business as a whole.

With the Monetary Policy Committee next due to meet on 21 September and the experts forecasting another rise with the rate likely not to fall until 2024/2025, this is an issue likely to be with us for some time.  Given HMRC’s secondary preferential status, it seems unlikely unsecured creditors will be seeing much of a return for a while to come.