HMRC Drops the Interest Rate, but Still Keeps a Double‑Edged Sword
Hey tax folks! The big news is that HMRC is finally trimming the interest it charges on late tax payments. After the Bank of England pulled the base rate down from 4.75% to 4.5% last week, HMRC followed suit.
New Rates Effective 17th February
- Interest on outstanding debts: 7% (down from 7.25%)
- Refunds and rebates: 3.5% (4.5% – 1%)
- Result: HMRC still charges double the interest it pays back.
With about 1.1 million self‑assessment taxpayers missing the 31st January deadline, that 0.25% hit feels a bit lighter. But remember, that extra 7% on a tax bill is not exactly a penny‑saving grin.
Seb Maley’s Take
“Good news on one hand,” says Seb Maley, CEO of Qdos, “those who couldn’t pay on time now pay less interest.” Yet, he adds, “It’s a small reprieve; the real story is that HMRC keeps slapping double interest on what people owe versus what it pays back. That mismatch is a hard pill to swallow.”
He warns that an unpaid tax bill at 7% interest can draw a close inspection, potentially leading to an investigation. So while the rate drop offers a sliver of relief, that sweetened interest still bites.
HMRC Justifies the Gap
In standard practice, HMRC points to “other tax authorities worldwide” and compares the rates to “commercial loans and deposits.” All sounds good—until you calculate the difference.
Key Points
- Interest rate cut to 7% on debts.
- Refund interest sits at 3.5%.
- HMRC charges double compared to what it returns.
- Longer unpaid periods may trigger closer checks.
So if you’re still staring at a huge tax bill, take a breather: at least the interest is a bit lighter. But keep guessing, because those extra percentages are still the taxman’s way of saying, “You still owe us, buddy!”
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