A further increase in interest paid to HM Revenue & Customs (HMRC) for late payment of taxes will hit taxpayers who are not up-to-date, and their bills could grow very quickly, say leading tax and advisory firm Blick Rothenberg.
Nimesh Shah, CEO of the firm, said: ‘Following another Bank of England base rate to 1.75%, HMRC has confirmed that it will raise its interest rates on late tax bills to 4.25% on 23 August – a level not seen since January 2009.’
‘Since the start of 2022, the HMRC’s interest rate has increased by 1.5%, an extra £225 per annum on a £15,000 tax liability. On the same £15,000 tax liability, you would suffer almost £650 of interest per annum. With rising costs rising across the board, HMRC has hiked up interest on late tax payments at the latest opportunity. It sets a worrying trend for some taxpayers struggling to pay their outstanding taxes, against other rising costs.’
Nimesh added: ‘The worst is yet to come on this front, with some economists projecting the Bank of England could decide to increase the base rate to 2.5% by the end of 2022 – this could see HMRC increasing their interest rate on late paid tax to 5% by the end of the year. Taxpayers with outstanding tax liabilities should be mindful to settle as much as they can afford before further rate rises.’
‘HMRC has also finally increased the repayment supplement rate by 0.25% to 0.75% – the first increase in this rate in over a decade. It’s quite shocking that HMRC has quickly increased the late-paid tax rate by six times the amount the equivalent repayment interest rate has gone up by this year.’
‘HMRC’s meagre 0.75% repayment supplement rate means there is no great incentive for HMRC to release repayments. There continues to be one rule for money owed to HMRC and another for taxpayers who are due a refund. Many taxpayers have seen significant delays to repayments over the last 12 months, but HMRC can continue to drag their heels with little cost to the Treasury.’