HMRC will reduce the interest it charges on late tax payments to 7.25% from November 18, following the recent cut in the Bank of England’s base rate.
However, this cut highlights a big difference: taxpayers will only receive 3.75% interest on tax refunds, leaving a 3.5% gap in favor of HMRC.
The revised interest rates will apply to new tax liabilities and quarterly taxpayers from November 18 and will be effective from November 26 for those on non-quarterly subscriptions. While any reduction in interest charges may sound beneficial, tax insurance specialist Qdos warns that the focus must remain on meeting the January 31 self-assessment deadline to avoid late payment penalties.
Seb Maley, CEO of Qdos, expressed concern about the interest rate difference, saying: “The real talking point here – the elephant in the room – is the difference between the interest HMRC charges on late payments and the interest it offers on refunds. While this approach may align with the practices of other tax authorities, it feels particularly unfair to the self-employed, who are often disproportionately affected.”
As the January self-assessment deadline approaches, taxpayers are reminded to prioritize timely compliance to avoid the 7.25% payment interest and additional penalties. However, taxpayers awaiting reimbursement could see a reduced rate of 3.75% – a difference that raises questions about the fairness of the system.
Maley added: “More than ever, self-employed people need to be vigilant about tax compliance, as late payments can incur high costs. HMRC’s higher charges for late payments compared to refunds remain a controversial issue that deserves further investigation.”
As the self-assessment deadline approaches, taxpayers are encouraged to take all necessary steps to ensure timely payments, avoiding potential penalties in an economic climate where every percentage point matters.