HMRC’s lower interest rate on late payments outweighs the refund difference
HMRC will reduce the interest rate charged on late tax payments to 7.25% from 18 November, following the recent cut in the Bank of England’s base rate.
However, this reduction highlights a major difference: taxpayers will only receive 3.75% interest on tax refunds, leaving a 3.5% gap in HMRC’s favour.
The revised interest rates are applicable to new tax arrears and quarterly installment taxpayers from November 18 and will come into effect from November 26 for those on non-quarterly plans. While any reduction in interest charges may sound beneficial, tax insurance specialist Qdos warns that the focus should be on meeting the self-assessment deadline of 31 January to avoid late payment penalties.
Seb Maley, CEO of Qdos, expressed concern about the difference in interest rates, saying, “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 they offer on refunds. Although this approach may be in line with the procedures of other tax authorities, it feels unfair especially to the self-employed, who are often unfairly affected.”
With the January self-assessment deadline approaching, taxpayers are reminded to prioritize timely compliance to avoid the 7.25% late payment interest rate and other penalties. Taxpayers expecting a refund, however, could see a reduced rate of 3.75% – a difference that raises questions about the fairness of the system.
Maley added, “More than ever, self-employed people need to be aware of their tax compliance, because late payments can be very costly. HMRC’s high charges for late payments compared to returns remain a problem that needs to be looked at more closely.”
As the self-assessment deadline approaches, taxpayers are encouraged to take all necessary steps to ensure timely payment, avoiding potential penalties in an economy where every point counts.
