HMRC has announced a reduction in the interest charged on overdue tax payments, following the Bank of England’s recent decision to cut the base rate from 4.75% to 4.5%.
From 17th February, taxpayers with outstanding debts will see the interest rate on late payments drop from 7.25% to 7%. This will offer some relief to the estimated 1.1 million self-assessment taxpayers who missed the 31st Januarydeadline for filing their returns.
However, the disparity between what HMRC charges on late payments and pays on refunds remains significant. While late payers will now be charged 7% interest, HMRC will only pay 3.5% interest on tax refunds, calculated as the base rate minus 1%.
An HMRC spokesperson defended the policy, stating: “The difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.”
Seb Maley, CEO of tax insurance firm Qdos, acknowledged that while the rate cut offers some relief, the bigger issue is the imbalance in HMRC’s interest rates:
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