The interest rate the taxman charges on unpaid tax has reached a 14-year high of 6 per cent, but if you expect the same return on anything it owes you, you’ll be out of luck.
HM Revenue & Customs increased the rate on unpaid income tax, national insurance, capital gains tax, stamp duty, corporation tax and inheritance tax by 0.5 percentage points today after last month’s Bank of England base rate rise. This is the highest since November 2008, when HMRC charged 6.5 per cent.
A year of rising base rate, which is now 3.5 per cent, up from 0.1 per cent in December 2021, means it has more than doubled since last January, when it was 2.75 per cent. Someone who owed £20,000 in tax would now be charged £1,200 in interest, against £550 then.
Yet those owed money by HMRC will receive far less. The rate will increase to 2.5 per cent, but this has only gone up by two percentage points since January last year.
The 3.5 percentage point gap is because of 2011 legislation that guarantees HMRC charges 2.5 percentage points above the base rate, but pays one percentage point below it — to a minimum of 0.5 per cent.
“The interest rate on late paid tax has doubled in less than a year and while it is not quite in payday lender territory, delaying paying HMRC has a real cost to it,” Tim Stovold, head of tax at the accountancy firm Moore Kingston Smith, said.
“Although it seems unfair, those who have overpaid their tax cannot expect a windfall. HMRC has always maintained the 3.5 per cent discount from the late payment rate to the interest on overpaid tax.”
Any interest is on top of any fines you receive for missing the January 31 deadline to file your self-assessment return and pay any tax due. HMRC said this week that 5.7 million people still needed to file their returns, with the prospect of a £100 fine for filing late. Interest is in turn added to these fines.
Dawn Register, from the accountants BDO, said: “If you are going to struggle to pay your bill on time, agreeing a formal time to pay arrangement with HMRC before the penalty is charged will mean as long as you stick to the instalment payments agreed, the penalty won’t be charged. However, interest will be applied.”
HMRC said: “The interest we charge and pay delivers fairness for all. It ensures we don’t encourage people to overpay their tax to secure a higher interest rate than available commercially, while those paying late don’t get an unfair financial advantage over those paying on time.”
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HMRC on to a nice little earner with 6% interest charges for unpaid tax