Another reason to pay your tax on time!

Another reason to pay your tax on time!

The Chartered Institute of Taxation (CIOT) is lobbying the government to address unfair tax rules as HMRC interest rates on late payments are due to rise by a further 1.5% in April to 9%, with no equivalent increase in interest on overpaid tax.

The CIOT is urging the government to re-introduce rules which were removed when the new VAT return period on or after 01 January 2023 came into effect, until then HMRC were able to waive interest on underpaid VAT when no actual tax loss to the Exchequer occurs.

The CIOT has argued that the imbalance between repayment and late payment interest rates, particularly when late payment penalties are factored in, is unfair.

This imbalance will be further exacerbated by the increase in late payment interest rates from April 2025, meaning that the rate of interest that HMRC pays taxpayers on money it owes them will be 5% lower than the rate taxpayers are charged on money that they owe to HMRC.  

The CIOT stated: ‘We are calling on the government to consult on the rate and approach to repayment interest on overpaid tax.’

‘It is vital to ensure that repayment interest provides adequate and fair recompense for the loss of the use of the monies by the business or individual concerned, and an adequate incentive for HMRC to process repayments in a timely fashion.’

‘If HMRC fails to make tax repayments on time, or makes errors leading to taxpayer refunds, it pays interest at the Bank of England base rate minus 1%. If a taxpayer fails to make a tax payment in time, or makes errors leading to an underpayment of tax, HMRC charges interest at the Bank of England base rate plus 2.5%.’

From April 2025, the rate of interest payable to HMRC on overdue tax will be increased by 1.5% to the Bank of England base rate plus 4%, thus increasing this differential even further. Penalty interest or other late payment penalties may also be charged on the taxpayer, but not HMRC.