Should late taxpayers pay more interest on their payments than HMRC does on tax rebates?
This interesting question has strong views on both sides, with the ACCA (a professional body for accountants) up in arms at the unfairness of this situation.
What is the current interest payment situation?
Currently, if a taxpayer is late paying their tax bill, they are charged interest on the total at a rate of 3.25%. This is an increase of 0.25%, in line with the bank rate.
If you are owed a tax repayment from HMRC, it’s a different story. They pay interest on your rebate at a rate of 0.5% and this rate hasn’t gone up in almost 10 years.
Why is there one interest rate for taxpayers and another for HMRC?
The Tax Office keep this difference so that people don’t deliberately overpay on their tax bill in order to get a better return. They think that taxpayers might see that they could make more on interest from a tax rebate, than they would in a savings account.
Obviously, HMRC support their own position on this question, saying:
“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.”
What’s the other side of the argument?
A reported by the BBC, head of taxation at ACCA, Chas Roy-Chowdhury feels that this is “simply unfair” and that there should be a equal rate payable by both parties. HMRC should charge taxpayers interest at the same rate as it pays itself.
Avoid fines altogether
There is a simple way to avoid this entire argument and the substantial fines for late payment – don’t miss the deadline. If you know you have things to submit to HMRC, like a self assessment tax return, make sure that the deadline date is in your diary. Plan in all the steps you need to take up to the that point and dodge the stress of a last minute panic.