This increase will NOT go ahead. See our article Corporate tax interest rates will not be increased after all.
With effect from 1 March 2023, the rate of tax interest for corporation tax will be increased to 10,5%. The income tax rate remains 4%.
Tax interest rates are set every six months. Tax interest rates are based on the rates applied by the European Central Bank (ECB). It appears that these rates are set to rise further in the near future. Consequently, a further increase in tax interest rates is also highly likely.
Tax interest
The Tax and Customs Administration charges tax interest if income tax or corporation tax is due to be paid or top-up paid after six months have elapsed following the end of the tax year. For tax assessments relating to 2022, this therefore applies to tax that is due to be paid or top-up paid after 30 June 2023. For legal entities with a non-calendar financial year, the six-month period begins on the day following the last day of that financial year.
Tax interest is added to the amount of income tax or corporation tax due in the provisional or final tax assessment.
If you are entitled to a refund of income tax or corporation tax, the Tax and Customs Administration will only reimburse tax interest in very exceptional circumstances.
Prevention
The new corporation tax rate of 10.5% is very high (until 28 February 2023, this rate is 8%). Furthermore, many taxpayers do not achieve a return on their assets that is equal to or higher than the income tax rate (4%). Consequently, many taxpayers wish to avoid having to pay tax interest. This can be achieved in the following two ways.
- By submitting the tax return to the Tax and Customs Administration by 1 May (income tax) or 1 June (corporation tax where the financial year is not a split financial year) of the year following the tax year in question. You will then not be charged tax interest insofar as the assessment is issued in accordance with the tax return submitted. PLEASE NOTE: following the submission of a tax return, the Tax and Customs Administration generally issues a provisional assessment promptly, which must of course then be paid.
- Have the Tax and Customs Administration issue a (further) provisional assessment for the (estimated) amount of income tax or corporation tax payable, no later than 2 months before the start of the interest period on which interest is calculated. You will then only pay tax interest to the extent that you pay additional tax in excess of the amount of the provisional assessment. PLEASE NOTE: the tax due on that provisional assessment must, of course, be paid.
Interest on arrears
As well as tax interest, you may also incur collection interest. Collection interest is calculated if you pay the tax due on a tax assessment after the payment deadline stated on the assessment (for example, because you have been granted a deferral of payment). The current rate of collection interest is 2%. This will be increased to 3% on 1 July 2023 and to 4% on 1 January 2024.