HMRC will reduce the interest rate it charges on late tax payments to 7.25% from November 18, following the latest cut in the Bank of England’s base rate.
However, this reduction highlights a stark disparity: taxpayers will receive just 3.75% interest on their tax refunds, leaving a 3.5% gap to HMRC.
The revised interest rates apply to new tax debt and taxpayers in quarterly installments starting November 18 and will be effective starting November 26 for those with non-quarterly plans. While any reduction in interest charges may seem beneficial, tax insurance specialist Qdos warns that the focus must remain on meeting the self-assessment deadline of 31 January to avoid late payment penalties.
Seb Male, CEO of Qdos, expressed concerns about the interest rate differential, saying: “The real talking point here – the elephant in the room – is the difference between the interest rate that HMRC charges on late payments and the rate it offers on refunds.” While this approach may be consistent with the practices of other tax authorities, it appears 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% late payment interest rate and additional penalties. But taxpayers waiting for refunds could see a reduced rate of 3.75% – a disparity that raises questions about the fairness of the system.
Maley added: “More than ever, self-employed individuals need to be careful about tax compliance, as late payments can come at a high cost. The higher fees charged by HMRC on late payments compared to refunds remain a controversial issue worth More scrutiny.
As the self-assessment deadline approaches, taxpayers are encouraged to take all necessary steps to ensure timely payment, and avoid potential penalties in an economic climate where every percentage point counts.
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