But taxpayers still pay nearly double in interest compared to the amount HMRC pays in tax refunds
HMRC has confirmed it will reduce the interest it charges on late tax payments, in line with the Bank of England cutting the base rate from 4.75% to 4.5% last week.
This means on 17th February, taxpayers with outstanding debts to HMRC will be charged 7% interest – down from 7.25% – on outstanding debts. With approximately 1.1m self-assessment taxpayers having missed the recent 31st January deadline, this means the amount they will be charged on late tax returns will reduce.
When calculating interest, HMRC factors in the base rate plus 2%. However, with regards to how much interest HMRC pays on tax refunds, this amounts to the base rate minus 1%. As a result, from 17th February, this will be 4.5% minus 1% (3.5%).
It means HMRC charges twice as much interest as it repays. HMRC stated that: “The difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.”
Seb Maley, CEO of tax insurance firm, Qdos, said, “Good news on one hand – that those who weren’t able to pay their tax bill on time last month will pay less interest on the amount they owe in tax. With 1.1m said to have missed the recent deadline, the revised Bank of England interest rate may offer them some respite.
“But it’s a small reprieve, in reality. The story here is that HMRC still charges double the amount of interest than it pays on money owed to taxpayers in the form of refunds and rebates. It’s a huge mismatch and one that taxpayers are bearing the brunt of.
“Along with being hit by interest rates as high as 7% on outstanding tax bills, the longer a tax bill remains unpaid, the higher the chances are that HMRC will take a closer look and potentially investigate.”
