As the 31 January deadline for submitting self-assessment tax returns approaches, HMRC has issued a reminder for taxpayers to ensure their details and tax codes are up to date. The warning comes amid growing concern about the significant disparity between interest rates charged by HMRC on late payments and those paid out on refunds.<\/p>\n\n\n\n
According to recent guidance from the UK tax authority, interest on unpaid tax is now set at 7.75%<\/strong>, a rate calculated by adding four percentage points to the Bank of England\u2019s base rate. In contrast, HMRC only pays 2.75%<\/strong> interest when it owes money to taxpayers. This discrepancy, though defended by the authority as consistent with international norms, has prompted criticism from financial experts.<\/p>\n\n\n\n The late payment interest rate applies across a range of HMRC levies, including income tax, corporation tax, and VAT. According to HMRC, the 7.75% rate reflects the current base rate of 5.25% plus four percentage points<\/strong>. Conversely, the repayment interest rate, applied when HMRC owes funds to individuals or businesses, is based on the base rate minus one percentage point, with a lower threshold of 0.5%.<\/p>\n\n\n\n According to HMRC, this system aligns with practices used by other tax bodies globally. The authority argues the approach remains \u201cfavourable\u201d compared to commercial rates applied to loans, overdrafts or savings. But critics say the five-percentage-point gap between what is charged and what is paid represents an unfair burden on taxpayers.<\/p>\n\n\n\n Karen Barrett<\/a>, founder of the financial advice platform Unbiased, described the disparity as \u201ca stark reality\u201d for individuals trying to navigate complex tax systems. Speaking to the media, she stated that the elevated interest rate \u201ccan feel punitive,\u201d especially given that late payments often result from financial strain rather than deliberate non-payment.<\/p>\n\n\n\n Barrett also warned that interest charges are not limited to unpaid tax amounts but also apply to penalties added for missed deadlines. For example, those who fail to file their self-assessment tax return by the due date face an initial \u00a3100 penalty<\/strong>, with further fines imposed after three, six and twelve months.<\/p>\n\n\n\n In light of these policies, tax professionals are advising individuals to take a more proactive role in managing their tax obligations. Nishi Patel<\/a>, managing director of N-Accounting, told the press that some taxpayers may unintentionally fall behind due to changes made by HMRC without their knowledge. According to Patel, this is particularly likely when the authority issues a simple assessment or amends a tax return without informing the customer.<\/p>\n\n\n\n Patel added that while the 7.75% charge may seem high, it remains more competitive than some bank loan rates. He cautioned that this could lead some individuals to treat overdue tax bills as an alternative form of borrowing, a view he said could prove risky without proper financial planning.<\/p>\n\n\n\nDisparity in Interest Rates Draws Scrutiny<\/strong><\/h2>\n\n\n\n
Tax Experts Urge Proactive Approach<\/strong><\/h2>\n\n\n\n