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HMRC has announced it will reduce the interest it charges on late tax payments, following the cut to the Bank of England base rate, from 5.0% to 4.75%, earlier this month.
Calculated as the Bank of England base rate plus 2.5%, HMRC interest rates will fall from 7.5% to 7.25% from 18th November for new tax debts and taxpayers making quarterly instalments on existing tax debts. The effective date for those taxpayers on non-quarterly repayment plans is 26th November.
While a decrease may sound like good news, Qdos – a tax insurance expert for the self-employed – is warning taxpayers to hold off celebrating just yet and instead to focus on getting their tax affairs on track ahead of the 31st January self-assessment deadline.
Failure to pay on time will still incur a late payment penalty, with 7.25% interest charged on the overall tax liability. Meanwhile, HMRC also continues to charge higher interest on late payments than it offers on tax refunds (4%, falling to 3.75% as a result of the change in base rate) – effectively pocketing the difference.
Qdos CEO, Seb Maley, said, “With HMRC’s interest rates linked to the Bank of England base rate, it’s no surprise they’re being recalculated. And, following consecutive hikes in recent years, seeing them fall further is obviously a welcome development.
“But the real talking point here – and the elephant in the room – is the difference between the interest rate HMRC charges, and the one it offers on refunds. HMRC might well argue this approach is consistent with the other tax authorities around the world, but it does seem somewhat unfair – and the self-employed are disproportionately affected.
“With January’s self-assessment deadline approaching, this throws the issue into even sharper focus. More than ever, it’s important that self-employed taxpayers are aware of the costs of late filing and payment – and take every step possible to ensure their tax compliance during the self-assessment.”
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