HMRC Interest Rates
HMRC has come under widespread criticism for what is seen as an unfair differential in the interest rate it pays to those who over-pay their tax and the rate it charges those who owe tax.
The recent increase in the Bank of England’s base rate has led to an increase in the penalty rate of 0.25% to 3.25% while the repayment rate has been frozen at 0.5% – where it has been since 2009.
The penalty rate being high (best cash ISAs were paying less than 2% on 31st August 2018) is understandable really as being a very clear incentive to pay tax speedily. Paying such a low rate on repayment, however, seems less defensible, especially given that such repayments often arise from errors at HMRC.
A spokesperson for HMRC responded to the criticism by saying ‘The rate we pay on repayments never falls below 0.5% even when the Bank of England base rate is low’. The statement continued ‘The different interest rates provide fairness to taxpayers who pay on time……..it is only right that those who don’t, pay a higher rate of interest…’
All of which emphasises the need to ensure that tax returns are checked thoroughly and both under and over payments are avoided – since both seem to be penalised by this system.
If you would like to discuss this blog in more detail please email David Bennett or call 01772 821 021.