These Regulations, made by the Treasury under powers in the Finance Act 1989, amend the Taxes (Interest Rate) Regulations 1989 to establish the specific annual interest rates applicable to unpaid and overpaid amounts of Multinational Top-Up Tax and Domestic Top-Up Tax, commencing on 17th April 2026.
Arguments For
Establishes clear, set initial interest rates (7.75% for unpaid, 2.75% for overpaid) for the new multinational and domestic top-up taxes, providing regulatory certainty for taxpayers and HMRC.
Implements a mechanism to dynamically adjust the interest rate based on prevailing economic conditions by linking the rate to a 'reference rate' after the initial period, ensuring the rates remain appropriate over time.
Fulfills the requirement to set interest rates under Section 178 of the Finance Act 1989 for taxes introduced by the Finance (No. 2) Act 2023, aligning the mechanics of these new taxes with existing Treasury powers.
Arguments Against
The initial fixed rate for unpaid tax (7.75%) may be perceived as high, potentially increasing compliance costs or burden for businesses facing retrospective tax applications related to the complex Pillar 2 framework.
The formula for adjusting rates after April 2026 introduces complexity, requiring careful monitoring of the 'reference rate' and 'established rate,' which could lead to administrative challenges or disputes regarding operative dates.
The regulation introduces variable interest calculation details for overpayments, which includes a minimum floor of 0.5%, potentially penalizing taxpayers who receive timely refunds but whose funds were held by the Exchequer during the dispute period.
STATUTORY INSTRUMENTS
2026 No. 347
DOMESTIC TOP-UP TAX MULTINATIONAL TOP-UP TAX
The Taxes (Interest Rate) (Amendment) Regulations 2026
Made - - - - (1)
24th March 2026
Laid before the House of
Commons - - - - (2)
26th March 2026
Coming into force - -
17th April 2026
The Treasury make these Regulations in exercise of the powers conferred by section 178(1), (2)(x) and (y) and (3)(a) to (c), (e) and (f) of the Finance Act 1989( 1 ).
This introductory section identifies the legislation as a Statutory Instrument numbered 2026 No. 347, concerning Domestic Top-Up Tax and Multinational Top-Up Tax.
The Regulations were made on March 24th, 2026, presented to the House of Commons on March 26th, and officially came into force on April 17th, 2026.
The Treasury enacted these rules using specific authority granted by the Finance Act 1989.
Citation and commencement
- These Regulations may be cited as the Taxes (Interest Rate) (Amendment) Regulations 2026 and come into force on 17th April 2026.
Regulation 1 specifies the official title of this legislation as the Taxes (Interest Rate) (Amendment) Regulations 2026.
It confirms that the rules become legally effective on April 17th, 2026.
Amendment of the Taxes (Interest Rate) Regulations 1989
- -(1) The Taxes (Interest Rate) Regulations 1989( 2 ) are amended as follows.
- (2) After regulation 3ZE, insert-
' Applicable rate of interest on unpaid multinational top-up tax and domestic top-up tax
3ZF. -(1) For the purposes of paragraph 33 of Schedule 14 to the Finance (No. 2) Act 2023( 3 ), with respect to unpaid multinational top-up tax( 4 ) and domestic top-up tax( 5 ), the rate applicable under section 178 shall, subject to paragraph (2), be 7.75% per annum.
- (2) Where on a reference date after 17th April 2026 the reference rate found on that date differs from the established rate, the rate applicable under section 178 for the purposes
( 1 ) 1989 c. 26. Section 178(2)(x) was added by paragraph 68(2) of schedule 14 to the Finance (No. 2) Act 2023 c. 30 and was amended by paragraph 52 of Schedule 8 to the Finance Act 2026 c. 11. Section 178(3)(f) was amended by section 88(2)(b) of the Finance Act 2019 c. 1.
( 2 ) S.I. 1989/1297; relevant amending instruments are S.I. 2008/3234, 2009/2032.
( 3 ) 2023 c. 30.
( 4 ) Multinational top-up tax is defined in section 121 of the Finance (No. 2) Act 2023.
( 5 ) Domestic top-up tax is defined in section 265 of the Finance (No. 2) Act 2023. Paragraph 4 of Schedule 18 to the Finance (No. 2) Act 2023 applies paragraph 33 of Schedule 14 to domestic top-up tax.
mentioned in paragraph (1) shall, on and after the next operative date, be the percentage per annum found by applying the formula specified in paragraph (3).
- (3) The formula specified in this paragraph is-
$$Rate = (RR - Established Rate) \times 0.05 + Established Rate$$
where RR is the reference rate referred to in paragraph (2).
Applicable rate of interest on overpaid multinational top-up tax and domestic top-up tax
3ZG. -(1) For the purposes of paragraph 33A of Schedule 14 to the Finance Act (No. 2) 2023( 6 ), with respect to overpaid multinational top-up tax and domestic top-up tax( 7 ), the rate applicable under section 178 shall, subject to paragraph (2), be 2.75% per annum.
(2) Where on a reference date after 17th April 2026 the reference rate found on that date differs from the established rate, the rate applicable under section 178 for the purposes mentioned in paragraph (1) shall, on and after the next operative date, be the higher of-
- (a) 0.5% per annum, and
- (b) the percentage per annum found by applying the formula specified in paragraph (3).
(3) The formula specified in this paragraph is-
$$Rate = (RR - Established Rate) \times 0.05 + Established Rate$$
where RR is the reference rate referred to in paragraph (2).'.
Regulation 2 systematically updates the existing Taxes (Interest Rate) Regulations 1989 by inserting two new regulations, 3ZF and 3ZG. Regulation 3ZF sets the initial annual interest rate for unpaid multinational and domestic top-up tax at 7.75% for the purposes defined by Schedule 14 of the Finance (No. 2) Act 2023.
For unpaid tax, if a 'reference rate' changes after the commencement date, the applicable interest rate will switch from the fixed rate to a rate determined by a specified formula, which adjusts based on the difference between the reference rate (RR) and the 'established rate,' ensuring the rate reflects current conditions.
Regulation 3ZG establishes the initial annual interest rate for overpaid amounts of the same taxes at 2.75%.
If the reference rate changes after commencement, the rate payable on overpayments will be the greater of 0.5% per annum or the percentage calculated using the same complexity-adjusted formula as specified for unpaid tax.
24th March 2026
Taiwo Owatemi Stephen Morgan Two of the Lords Commissioners of His Majesty's Treasury
( 6 ) Paragraph 33A was inserted into Schedule 14 to the Finance (No. 2) Act 2023 by paragraph 37(3) of Schedule 12 to the Finance Act 2024.
( 7 ) Paragraph 4 of Schedule 18 to the Finance (No. 2) Act 2023 applies paragraph 33A of Schedule 14 to the Finance (No. 2) Act 2023 to domestic top-up tax.
This details the signatories, confirming the Regulations were authorized by two Lords Commissioners of His Majesty's Treasury on March 24th, 2026.
The accompanying footnotes provide context, tracing the specific legislative paragraphs (33A, 33) that mandate these interest calculations to recent Finance Acts from 2023 and 2024, which established the underlying top-up tax regimes.
EXPLANATORY NOTE
(This note is not part of the Regulations)
These Regulations amend the Taxes (Interest Rate) Regulations 1989/1297 ('1989 Regulations'). The 1989 regulations specify rates of interest for the purposes of the enactments specified in section 178(2) of the Finance Act 1989 (c. 26). The amendments made by these Regulations specify the applicable rates of interest for unpaid and overpaid amounts of multinational top-tax and domestic top-up tax.
Multinational top-up tax was introduced by Part 3 of the Finance (No. 2) Act 2023 (c. 30).
Domestic top-up tax was introduced by Part 4 of the Finance (No. 2) Act 2023 (c. 30).
Regulation 2 inserts new regulations 3ZF and 3ZG which specify the interest rate applicable under section 178 of the Finance Act 1989 (c. 26) in relation to unpaid and overpaid multinational topup tax and domestic top-up tax.
A Tax Information and Impact Note covering this instrument was published on 15th March 2023 entitled 'Multinational top-up tax and Domestic top-up tax: UK adoption of OECD Pillar 2' alongside the Autumn Finance Bill 2023, and is available on the government website at https:// www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. It remains an accurate summary of the impacts that apply to this instrument.
The Explanatory Note clarifies that the purpose of this instrument is to update the 1989 Regulations, which govern tax interest rates, specifically for the newly introduced Multinational Top-Up Tax and Domestic Top-Up Tax.
These new taxes stem from the Finance (No. 2) Act 2023, which put into effect the UK's adoption of the OECD Pillar 2 framework.
This note confirms that Regulation 2 creates the rules (3ZF and 3ZG) for interest on sums owed (unpaid) and sums due back to the taxpayer (overpaid) under these new tax regimes.
An associated Tax Information and Impact Note, published in March 2023, provides background context on the economic effects of implementing these global tax rules.
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