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. We think it’s time to consult to ensure that repayment interest meets the government’s objective to be fair and even-handed.”
The new late payment and repayment interest rates are:
- late payment interest rate — 7% from 31 May 2023
- repayment interest rate — 3.5% from 31 May 2023
The latest rate (7%) has gone up from 2.75% in January 2022, which is more than double (2.5 times) in 16 months.
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.
It is wrong that HMRC demand twice as much interest from people who owe them tax as they would pay out to those same people. And in the current climate this really matters.