HMRC’s interest rate charged on unpaid tax rises to a new 13-year high of 5.5%, which is almost six times the rate paid on money HMRC owes it’s customers. In contrast, the rate HMRC pays on repayments to customers is far less generous and has increased from 1.25% to 2.0%.
While the differential in HMRC’s interest rates may seem surprising, it is in line with tax policy in other countries. The rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay or pay early.
The new rates come into effect from 22 November 2022, and are due to the recently announced increase in the Bank of England base rate. Because HMRC rates are set in legislation the increase is unavoidable.
This comes at a time when many people are concerned about their financial position due to rising costs and the prospect of a recession, so the last thing they can afford is more interest on any tax owed. In one example, a self-employed person contacted us for advice as her mortgage payment had increased by over 300% since January 2022. People are facing very real financial difficulties, and if you are late paying HMRC any tax owed you will need to consider that interest will be charged on top. Whether it’s business or personal tax owed, the new interest rates mean that taxpayers should settle as much of their outstanding tax liability as they can afford.
We have continued our lobbying of the government, particularly the Chancellor as they must realise that self-employed people need specific support if they are to continue weathering the financial storm we are now facing. With the Autumn Budget fast approaching (on Thursday 17 November 2022) we hope that there will be measures to help.
