HM Revenue & Customs has been accused of charging “simply inequitable” interest rates to taxpayers, who have been left facing late payment bills up to 17 times higher than what is returned to those who have overpaid.
The Chartered Institute of Taxation, a trade body, has called on the Government to urgently review interest rates on late taxes, which are charged at 6.5pc, more than double the 3pc rate that applies to tax refunds.
The rates change in line with the Bank of England’s Bank Rate, which is currently 4pc. Rates on late taxes are charged at the Bank Rate plus 2.5 percentage points, while interest on tax refunds to individuals and businesses is charged at the base rate minus 1 percentage point – a difference of 3.5 percentage points.
It means a taxpayer failing to pay a £5,000 tax debt until four weeks after the annual January 31 deadline would be forced to pay £976 in additional income duties for their tardiness. Meanwhile, HMRC would be forced to pay just £57 in interest if it failed to pay back a refund of the same amount on time for the same four weeks.
Richard Wild, of the CIOT, said the differential between the rate of interest charged by HMRC on late payments compared to the interest it pays on overpayments or refunds was “simply inequitable, particularly at times when many businesses and individuals continue to suffer long delays”.
“Unless something is done to bridge the gap between repayment interest and late payment interest, the Government will struggle to achieve its objectives of building a trusted, modern tax administration system that is seen as fair and even-handed,” he said.
HMRC said its current interest rate regime “encourages prompt payment” and “compensates taxpayers fairly”, while the system is in line with tax authorities in other countries. The last consultation on rates was in 2009.
It comes alongside calls from other tax trade bodies for an emergency task force to tackle ongoing delays at the tax office.
Taxpayers and accountants have been forced to wait up to a year for HMRC to respond to queries over the phone or by post in some cases, according to the Institute for Chartered Accountants in England and Wales, another trade body. Customer service staffing levels at the tax authority have reduced from 25,500 to 19,500 people, causing long delays for both agents and taxpayers.
The chief executive of the ICAEW Michael Izza said delays at HMRC were “unacceptable”, and urgently needed to be addressed, saying they were “acting as a drag on the UK’s economic growth.”
HMRC and HM Treasury were approached for comment.