Interest rates

HMRC raises interest rates – ‘unfair’ for two million taxpayers | Personal finance | Finance

That’s six and a half times the rate it pays on tax refunds it owes taxpayers, says UHY Hacker Young, the national accounting group. The interest rate HMRC charges taxpayers for late payments is linked to the Bank of England’s base rate, which rose to 0.75% in mid-March.

However, at the same time that HMRC has increased the rate it charges on late tax payments, it has kept the rate it pays to people receiving a tax refund from HMRC at just 0.5% .

The rate of interest HMRC pays on the tax it owes taxpayers has remained the same since 2009. The difference will seem unfair to many taxpayers, UHY Hacker Young explained.

More than two million taxpayers will pay more interest on overdue taxes after HMRC raised rates for the third time this year.

The higher rates will come into effect on April 5 and will affect the 1.3 million freelancers, landlords and other workers who have yet to file their tax returns for the year.

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It will also affect 850,000 struggling taxpayers on HMRC’s reimbursement schemes, known as ‘Time to Pay’.

HMRC has been criticized for not making a similar increase in the interest rate it pays on tax refunds, The Telegraph reported.

This rate will remain frozen at 0.5% and has not increased for more than a decade, despite the recent increase in the bank rate.

Phil Kinzett-Evans, partner at UHY Hacker Young, commented on the rise and said: “The disparity between what HMRC takes in late interest and what they give back is growing.

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The increase comes as families face soaring energy bills, the highest inflation in 30 years and further tax hikes next month.

Mr Kinzett-Evans continued: ‘HMRC should at least pay a more generous rate of interest where it is HMRC’s fault if the taxpayer has paid too much tax, such as when given a tax code incorrect.

“This is not a problem that will only affect a few people. HMRC owes a lot of money to taxpayers every year, both individuals and businesses.

“With interest rates and inflation continuing to devalue the money it owes them, it is important that HMRC pushes its rates to a fairer level.”

HMRC said the late payment rate increased automatically in line with the discount rate, while the refund rate was set at its discretion.

He said the latter, paid to ensure taxpayers weren’t out of pocket when they had paid too much tax, would not rise until the Bank of England raised its rate to 1 .5%, which is not expected until next year.

At this point, the late payment charge should be four percent. The tax authority claimed that the increased reimbursement rate would encourage self-employed people to deliberately overpay in order to get a better return on their cash than on a savings account.

A spokesperson said: ‘The interest we charge and pay ensures fairness for all. It ensures that we don’t encourage people to pay too much tax to get a higher interest rate than is available in the market and that those who pay their taxes late don’t get an unfair financial advantage over to those who pay on time.

“Most other comparable tax authorities take the same approach and our consultations on this revealed that most agreed or accepted that there should be an interest differential.”

Express.co.uk has contacted HMRC for comment.