Interest rate increase

HMRC Interest Rates = Profiteering From Late Payers

HMRC is profiteering from late payers by having different interest rates according to whether a taxpayer owes HMRC money or vice versa.  We have previously reported on the discrepancy, and we are not alone in condemning HMRC with the Chartered Institute of Taxation (CIOT) also stating that the situation is unfair.  In their budget submission, CIOT are calling for a public consultation about the issue.

Richard Wild, head of tax technical at CIOT, said: ‘The differential between the rate of interest charged by HMRC on late payments, as compared to the interest it pays on overpayments or refunds, is simply inequitable, particularly at times when many businesses and individuals continue to suffer long delays in receiving repayments from HMRC.”

In an extreme scenario, someone claiming a repayment of £5,000 could receive just £57 in 28 days’ interest from HMRC, compared with someone owing HMRC £5,000 being charged £776 interest if they pay late by 28 days.

Wild also said “‘The simple examples in our Budget representation demonstrate that the costs of paying late, particularly when penalties are considered, can be many times greater when they are charged on taxpayers as opposed to when they are charged on HMRC.  We think it’s time to consult to ensure that repayment interest meets the government’s objective to be fair and even-handed.”

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

  • late payment interest rate — 6.5% from 21 February 2023
  • repayment interest rate — 3% from 21 February 2023

According to HMRC, the rate discrepancy is in line with other tax authorities world wide.  HMRC say that the late payment interest rate encourages prompt payment and ensures fairness for those who pay their tax on time.  They also claim that the repayment interest rate compensates taxpayers fairly, when they overpay or pay early, for loss of use of their money.  This surely is an outdated view given the increase in Bank of England base rate during the last 12 months.

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