HMRC raises interest rates – ‘unfair’ for two million taxpayers | Personal Finance | Finance
This is six and a half times the rate that it pays on repayments of tax that it owes taxpayers, says UHY Hacker Young, the national accountancy group.The interest rate HMRC charges taxpayers on late payments is linked to the Bank of England base rate, which rose to 0.75 percent in mid-March.
However, at the same time as HMRC has hiked the rate it charges on late tax payments, it has kept the rate it pays to people receiving tax back from HMRC at just 0.5 percent.
The interest rate HMRC pays on tax it owes to taxpayers has remained the same since 2009. The difference will seem unfair to many taxpayers, UHY Hacker Young explained.
More than two million taxpayers will pay more in interest on overdue taxes after HMRC increased rates for the third time this year.
The higher rates take effect on April 5 and will hit the 1.3 million freelancers, landlords and other workers who have yet to file their tax return for the year.
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It will also hit 850,000 struggling taxpayers on HMRC repayment plans, known as “Time to Pay”.
HMRC has been criticised for failing to make a similar increase in the interest rate it pays on tax refunds, The Telegraph reported.
This rate will stay frozen at 0.5percent and has not risen for more than a decade, despite recent rise in the Bank Rate.
Phil Kinzett-Evans, Partner at UHY Hacker Young, commented on the rise and said: “The disparity between what HMRC takes in late payment interest and what it gives back just keeps growing.
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This increase comes as families are dealing with rocketing energy bills, the highest inflation for 30 years and yet further tax rises next month.
Mr Kinzett-Evans continued: “HMRC should at least pay a more generous interest rate where it has been HMRC’s fault the taxpayer has paid too much tax, like when they have been issued with an incorrect tax code.
“This isn’t an issue that will affect just a few people. HMRC owes a lot of money to taxpayers each year, both individuals and businesses.
“With interest rates and inflation continuing to devalue the money it owes them, it’s important that HMRC pushes its rates up to a fairer level.”
HMRC said the late payment rate rose automatically in line with the Bank Rate while the refund rate was set at its discretion.
It said the latter, paid to ensure taxpayers were not out of pocket when they had paid too much tax, would not increase until the Bank of England raised its rate to 1.5 percent, which is not expected until next year.
By this point the charge on late payments is expected to be four percent. The tax authority claimed that increasing the refund rate would encourage freelancers to overpay deliberately in order to get a better return on their cash than in a savings account.
A spokesman said: “The interest we charge and pay delivers fairness for all. It ensures that we do not encourage people to overpay their tax to secure a higher interest rate than is available commercially and that those paying their tax late do not get an unfair financial advantage over those paying on time.
“Most other comparable tax authorities take the same approach and our consultations on this found that most agreed or accepted there should be an interest differential.”
Express.co.uk has contacted HMRC for comment.
