The interest rates in question are those applied to taxpayers’ late tax bill payments and those added to HMRC’s tax refunds. HMRC pay 0.5% interest in addition to any tax refund amount they owe to taxpayers. If taxpayers are late to pay their tax bill, they are charged 3.25% interest. The latter is in line with the bank rate and the former is not. Why are the interest rates different?
HMRC’s stance on interest rates
A spokesperson for HMRC said: “The rate we pay on repayments never falls below 0.5%, even when the Bank of England base rate is low. The different interest rates provide fairness to taxpayers who pay on time. Most people pay their tax on time and it is only right that those who don’t, pay a higher rate of interest on the unpaid tax that would otherwise have gone to our schools, hospitals and other vital public services.”
Basically, the calculation made has not changed, leaving the repayments interest amount at 0.5% unless the bank rate goes above 1.5%. HMRC are guarding against the possibility of the system being manipulated. In theory, taxpayers could see tax refunds as an alternative to a savings account because the interest rate is more favourable.
This would make a mockery of the purpose of our tax refund system. It is important to safeguard the system against abuse so that honest taxpayers can continue to receive the tax reliefs they are entitled to.
Some disagree
Chas Roy-Chodhury is the head of taxation for the Association of Chartered Certified Accountants (ACCA). This organisation is “The global body for professional accountants”. He told the BBC that this discrepancy between the interest rate HMRC charges taxpayers and the one it pays itself is “simply unfair”.
He thinks that it should be the same interest rate for both.
HMRC interest rate conclusion
Of course the best way to stay out of this argument is to make sure that you’ve organised yourself to pay your tax bill on time. That way the late payment interest rate is of no consequence to you.
If you are one of the 10 million taxpayers who use the self assessment system, your paper submission deadline is coming up fast on the 31st October. If you file online, you have until 31st January 2019. Nobody enjoys paying their tax bill, but getting a fine with interest just for missing a deadline really rubs salt in the wound.
This is not something to leave until the last minute. You need to plan all the details of your self assessment tax return, working backwards from HMRC’s deadline. That way you just pay what you owe, maximise your tax rebate and don’t waste money on any self assessment penalties. It’s not simple, so use a tax professional to make sure you’re 100% accurate.
