HMRC hikes interest rates on late taxes to 3%

by Phil Kinzett-Evans

HMRC is raising the interest rate it charges on overdue tax bills from 2.75% to 3%, six times the 0.5% that it pays on repayments of overpaid tax, however, HMRC is not increasing the interest that it pays to taxpayers that might have been overcharged tax.

• Interest rate HMRC pay on overpaid tax has not changed since 2009
• Discrepancy will be seen as an unfair by many taxpayers

The interest rate HMRC charges taxpayers on late payment is linked to the Bank of England base rate, which rose to 0.5% in early February. However, the interest rate on overpaid tax has not moved from 0.5% since 2009.

Phil Kinzett-Evans, Partner in our Newbury office, says that many taxpayers will see the discrepancy between the two interest rates as unfair.

Phil Kinzett-Evans comments, “The difference in the interest rates HMRC receives and pays out suits it very well.”

“Many taxpayers will think this is one rule for HMRC and another rule for taxpayers. Surely a much fairer system would be for both rates to increase at the same time.”

“If one of those rates of interest is going to move up after the Bank of England changes rates, then the other should at the same time. Anything else smacks of stacking the decks against the taxpayer.”

“This is especially problematic as HMRC have been taking far longer to issue refunds to taxpayers recently.”

“Both personal and business taxpayers overpay billions in tax every year. For example, £9 billion in corporation tax was overpaid in 2020. So it’s an enormous amount in interest payments that taxpayers are losing out on because of the rules. As interest rates continue to rise the need to reform that formula may become more urgent.”

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