HMRC is reducing the interest rate on late tax payments to 7.25%, starting November 18, 2024.
- However, a notable disparity exists as taxpayers receive only 3.75% interest on refunds, creating a significant gap.
- The revised rates will impact both new tax debts and specific quarterly instalment taxpayers.
- Concerns have been raised over fairness, especially for self-employed individuals.
- Taxpayers are advised to meet the January self-assessment deadline to avoid penalties.
The recent announcement by HMRC to cut the interest rate on late tax payments to 7.25% effective from November 18, 2024, comes as a relief to many taxpayers. However, this adjustment highlights a substantial disparity as the interest on tax refunds remains at a lower 3.75%, thereby creating a 3.5% gap favoring HMRC.
From November 18, this revised interest rate will be applicable to those with new tax debts and taxpayers on quarterly instalments. By November 26, those on non-quarterly plans will also be subject to the new rates. The reduction in rates may seem beneficial at first glance, but it shifts focus to the inequity between interest rates charged and rates refunded.
Seb Maley, CEO of tax insurance specialist Qdos, points out the inequity, stating, ‘The real talking point here – the elephant in the room – is the difference between the interest rate HMRC charges on late payments and the rate it offers on refunds. While this approach may align with practices of other tax authorities, it feels particularly unfair to the self-employed, who are often disproportionately impacted.’ His comments underscore the need for vigilance among taxpayers, especially as the January self-assessment deadline looms.
The primary advice to taxpayers is to ensure compliance by the January deadline to avoid the significant 7.25% interest rate on late payments, along with any associated penalties. Those expecting refunds must brace for the less favorable 3.75% rate. This situation prompts questions about justice within the tax system.
Seb Maley adds, ‘More than ever, self-employed individuals need to be vigilant about tax compliance, as late payments can come at a high cost. HMRC’s higher charges on late payments compared to refunds remain a contentious issue that deserves further scrutiny.’ His remarks highlight a crucial issue in the current financial climate, where such disparities can significantly impact financial planning.
Ensuring timely tax compliance is crucial to navigate the existing interest rate disparities within the HMRC system.
