These new rates will affect those who make late payments on National Insurance, income tax, Capital Gains tax, inheritance tax and stamp duty. The Bank of England increased the base rate as the UK faces its highest inflation rate in four decades.
On May 5 the Bank of England Monetary Policy Committee voted to increase the base rate from 0.75 percent to one percent.
For many households this had seen anxiety set in as debts pile up while the cost of living crisis bites into paychecks.
As a result of the rise, HMRC interest rates for late payments will also increase in May as the two are directly linked.
Late payment interest rates are set at the base rate plus 2.5 percent.
The interest rate for quarterly payments will be implemented on May 16 and May 24 for non-quarterly payments.
This means that from the end of May, all late payments will have added interest of 3.50 percent.
3.50 percent interest is a level not seen for HMRC late payments since January 2009, during the financial crisis.
The repayment interest rate will not be affected, remaining at 0.5 percent.
The interest rates on late payments are meant to encourage Britons to promptly pay the money they owe to HMRC.
This all adds onto a pile of growing financial worries for Britons, as the base rate is now at a 13-year high in order to confront the equally astounding high inflation rate.
This is the fourth consecutive base rate hike since the end of 2021, when the base rate was at an all time low of 0.1 percent due to the pandemic.
However, inflation is not expected to slow anytime soon, which has lead some experts to believe there may be another base rate hike looming in the future as an attempt to get a hold of inflation.
An increase to the base rate essentially means that the public will see the cost of their borrowing increase for loans, mortgages and credit cards.
Experts have noted that the hike to one percent will match the current economy’s borrowing costs with levels seen in early 2009, following the financial crisis.
Britons already have less disposable income levels now than during that financial crisis as the likes of energy bills skyrocket beyond some people’s ability to afford.
These high energy prices are mostly due to pressures on the industry set on by the pandemic and compounded by the crisis in Ukraine.
Britons are now truly starting to feel the financial brunt of the current economic situation, as April saw the onset of new National Insurance rates, the energy price cap rise and the start of the new tax year.
Alastair Douglas, CEO of Totally Money, has warned that the rises could see 8.9 million people struggling to make their repayments.
He said: “For mortgage holders on variable rate deals, repayments that were once affordable, are going to quickly become unaffordable.
“Increasing rates to one will see two million borrowers face average repayment hikes of over £1,000 per year and could leave some defaulting on repayments for the first time.”