“Huge discrepancy” in HMRC tax repayment rate

Lily Canter
24 August 2018
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HMRC has been accused of treating taxpayers unfairly after it increased the interest rate charged to late taxpayers whilst its own repayment rate has remained frozen.

Accountancy body the Association of Chartered Certified Accountants (ACCA) says there should be a level playing field and that the current system has a “huge discrepancy”.

The interest rate charged to people who pay their tax late has been increased by 0.25 percentage points to 3.25% in line with the recent rise in the Bank of England base rate.

But the repayment rate paid by HMRC to those who have overpaid tax is still only 0.5%, the rate it has been since 2009. The tax authority argues the rate people pay on repayments will never fall below 0.5% even when the Bank of England base rate is low, ensuring that it delivers fairness.

Chas Roy-Chowdury, global head of tax at ACCA says: “There needs to be a mirror image. If HMRC raise their own interest rates then they need to think about raising the repayment rate. There is a huge discrepancy. The repayment rate should have gone up in line with the base rate if not higher.”

HMRC says setting a repayment rate higher than the Bank of England rate would encourage people to overpay their tax to gain a higher interest rate than they might get on a savings account.

An HMRC spokesperson explains: “The different interest rates provide fairness to taxpayers who pay on time. Most people pay their tax on time and it is only right that those who don’t pay a higher rate of interest on the unpaid tax that would otherwise have gone to our schools, hospitals and other vital public services.”

But Mr Roy-Chowdury says late tax payments are not always the fault of taxpayers due to the complexities of the tax system or disputes over how much tax is owed.

However, taxpayers are unlikely to see the repayment rate rise any time soon as HMRC states it will not increase above the floor of 0.5% until the Bank of England base rate increases above 1.5% - double the current amount.

The Bank of England base rate was raised to 0.75% on 2 August by the Monetary Policy Committee (MPC).

Comments

In reply to by anonymous_stub (not verified)

Whatever interest rate HMRC applies to late payers should also apply to the repayment rate. Afterall it is money they are not entitled to.

In reply to by anonymous_stub (not verified)

Surely a discrepancy like this can only be seen as punitive ie to punish the late payer. Yet, by law, only a judge can inflict punishment, not a debt-collector or anybody owed money.

In reply to by anonymous_stub (not verified)

If anyone believes that prices would be lowererd in the event of copper coinage being removed from circulation are living in cloud cuckoo land. An article at 99p would go up to £1.00 whereas an article at £1 .01p would undoubtedly go up to £1.05p. Or perhaps I'm being unreasonably pessimistic.

In reply to by anonymous_stub (not verified)

just another rip off company called the tax man who could not run a bath never mind a multi billion pound organization.

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