The UK Government needs to review “unfair” repayment interest rates, with taxpayers facing late payment bills from HMRC up to 17 times higher than what is returned to those who have overpaid, says the Chartered Institute of Taxation.
HMRC generally charges interest on late payment at the Bank of England’s base rate, currently 4%, plus 2.5%. However, interest on repayment from HMRC to individuals and businesses is the base rate minus 1%. This means there is usually a difference of 3.5 percentage points between the interest charged on late payments by HMRC and that paid by HMRC on repayments.
In an extreme scenario, this could result in an individual who submits their Self-Assessment tax return for the year 2020-21 on 31 January 2022, claiming a repayment of £5,000, being returned £57 in interest if HMRC do not make the repayment until 28 February 2023, while another who submits their return on the same date but fails to pay a liability of £5,000 until 28 February 2023 could be charged an additional £976 by virtue of their late payment, more than 17 times as much.