HMRC will reduce the interest rate it charges on late tax payments to 7.25% from 18th November, following the recent cut in the Bank of England’s base rate.
However, this reduction highlights a stark disparity: taxpayers will receive only 3.75% interest on tax refunds, leaving a 3.5% gap in favour of HMRC.
The revised interest rates apply to new tax debts and quarterly instalment taxpayers from 18th November and will be effective from 26th November for those on non-quarterly plans. While any reduction in interest charges may sound beneficial, tax insurance specialist Qdos warns that the focus should remain on meeting the 31st January self-assessment deadline to avoid late payment penalties.
Seb Maley, CEO of Qdos, voiced concerns over the interest rate difference, stating, “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 it offers on refunds. While this approach may align with practices of other tax authorities, it feels particularly unfair to the self-employed, who are often disproportionately impacted.”
With January’s self-assessment deadline approaching, taxpayers are reminded to prioritise timely compliance to avoid the 7.25% late payment interest rate and additional penalties. Taxpayers awaiting refunds, however, may see a reduced rate of 3.75% – a disparity that raises questions about fairness in the system.
Maley added, “More than ever, self-employed individuals need to be vigilant about tax compliance, as late payments can come at a high cost. HMRC’s higher charges on late payments compared to refunds remain a contentious issue that deserves further scrutiny.”
As the self-assessment deadline nears, taxpayers are encouraged to take all necessary steps to ensure timely payments, avoiding potential penalties in an economic climate where every percentage point matters.