HMRC’s decision to lower the interest rate on late tax payments highlights a notable disparity, drawing attention to different rates charged on refunds and late payments.
- From 18th November, HMRC will apply a 7.25% interest rate on late tax payments in response to a cut in the Bank of England’s base rate.
- Taxpayers will continue to receive a lower interest rate of 3.75% on tax refunds, creating a 3.5% difference favouring HMRC.
- The change affects new tax debts and quarterly instalment taxpayers immediately, while those on non-quarterly plans will see it from 26th November.
- Tax experts advise maintaining focus on the self-assessment deadline to avoid penalties despite lower interest rates.
In a recent announcement, HMRC has declared a reduction in the interest rate for late tax payments, setting it at 7.25% effective from 18th November. This move aligns with the recent decrease in the Bank of England’s base rate and is part of an effort to alleviate the financial strain on taxpayers. However, the adjustment has brought to light a significant issue concerning the rates offered for tax refunds.
Tax refunds will yield an interest of only 3.75%, resulting in a noticeable 3.5% gap compared to the rate charged for late payments. This discrepancy raises questions about the fairness of HMRC’s practices, particularly affecting self-employed individuals. These taxpayers, often more vulnerable to such variations, might view this approach as inequitable in comparison to other tax authorities.
The revised interest rates will impact both taxpayers with new debts and those paying through quarterly instalments starting from 18th November. For others on non-quarterly payment plans, the changes will take effect from 26th November. This timeline indicates a quick implementation, necessitating timely compliance and awareness from affected parties.
Seb Maley, CEO of Qdos, has expressed concern over the difference in rates, emphasising the impact on self-employed individuals. He stated, “The real talking point here – the elephant in the room – is the difference between the interest rate HMRC charges on late payments and the rate it offers on refunds. While this approach may align with practices of other tax authorities, it feels particularly unfair to the self-employed, who are often disproportionately impacted.”
Despite the reduction in interest rates, tax advisors encourage taxpayers to remain attentive to the 31st January self-assessment deadline. Ensuring compliance is critical to avoiding the high costs associated with late payments, including a 7.25% interest rate and potential penalties. In the current economic climate, where every percentage point can significantly impact finances, meeting the deadline becomes imperative.
The disparity between interest rates on tax payments and refunds necessitates further examination of HMRC’s practices.
