An important tax deadline is looming
Your bill can soon ramp up if you don’t pay your taxes on time(Image: Getty)
Taxpayers have been alerted to a crucial HMRC figure that could rapidly increase their costs. The tax authority recently reminded customers to ensure their details are up to date.
An HMRC spokesperson said: “Everyone is responsible for ensuring their own tax code is correct, and they can manage and update their tax code quickly and easily on our app or via their online tax account.” You can also view many other details through the app or your online personal tax account, such as your income tax estimate for the current year. Taxpayers might also want to double check their tax records as the deadline to submit your self-assessment tax return for the previous tax year is looming, on January 31.
If you fail to pay your dues on time, a late repayment interest rate applies to the amount you owe. This figure is calculated based on the Bank of England base rate plus four percentage points, meaning it is currently 7.75 percent.
HMRC guidance states that this rate applies to “the main taxes and duties that HMRC currently charges and pays interest on”. However, it may frustrate customers to discover that if the tax body owes you money, the rate it applies to the owed amount is significantly lower, at just 2.75 percent.
This rate is also determined based on the base rate, but one percentage point below the base rate. There is a lower limit for this rate of 0.5 percent. HMRC guidance explains this discrepancy.
The tax authority states: “The difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.”
‘Punitive’ charges
Karen Barrett, founder of financial advice platform Unbiased, said the large gap serves as a warning to taxpayers to pay what they owe on time. She said: “The five percentage point gap between what HMRC charges for late payments and what it pays for refunds highlights a stark reality for UK taxpayers: the financial stakes for getting your tax wrong are incredibly high.
“A 7.75 percent interest rate can feel punitive, particularly when many late payments arise from financial pressure or changing personal circumstances, not wilful avoidance. And while a debate on the fairness of the system is valid, it doesn’t solve these practical, real-world problems.”
It’s important to note that this late payment rate applies not only to the amount you owe but also to any penalties that are added on top of the amount. For instance, if you submit your self-assessment tax return late, you incur an initial penalty of £100, with additional charges if you still haven’t paid up after three months.
Further penalties are added to your bill once you reach the six-month and 12-month mark. In light of these potential hefty bills, Ms Barrett urged people to stay on top of their finances.
She said: “What really makes a difference is taking a proactive approach. With the support of a financial expert, it becomes far easier to plan ahead, manage cash flow, spot potential tax liabilities early and avoid problems escalating.
“If you are concerned about your tax position, or your finances are more complex, seeking advice from a qualified accountant or financial adviser can be invaluable. Having an expert on hand not only helps reduce risk, but also provides reassurance and clarity at what can otherwise be a very stressful time.”
The rate should be ‘much higher’
However, others believe the 7.75 per cent repayment rate ought to be substantially hiked. Nishi Patel, managing director of N-Accounting, said: “The rate for late payment needs to be much higher, as currently it is more generous than getting a loan from a bank and many taxpayers will view it as a reliable source of finance.
“There are penalties for late payment of personal tax which effectively achieve this, however business taxes like Corporation Tax and PAYE don’t have this.” He cautioned that the most common reason a taxpayer might find themselves owing HMRC money without realising is if the tax authority creates a simple assessment for them or amends their tax return without informing the customer.
He urged taxpayers to set up a personal tax account to keep track of any changes in such as this.
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