skyrocketing interest on overdue income tax payments climbs to £513 million due to HMRC increasing interest rate to its peak since 2007
Blast from the Past: Late Tax Payments and the HMRC's Pocket
Got a bit behind on that income tax? HMRC's got you covered with a hefty sum charged on late payments—an astounding £513 million since April 2020! The interest rate on overdue payments soared to its peak since 2007, standing tall at 8.25%.
Curious about what's triggered this steep climb? Well, buckle up! Late tax payments, after three months past due, are now charged with an interest rate of 4% above the Bank of England's base rate, a leap from the previous rate of 2.5%.
The surge in late payment interest? You'll find it nestled among packages of revenue-raising measures in the Autumn Budget of 2024. But what about those filing their tax return late? Be prepared for added pain in the form of penalties, which received an announcement in the Spring Statement of March.
Over a million taxpayers missed the self-assessment tax return deadline way back in January this very year. Neglecting the deadline invites an automatic £100 penalty and more fines depending on the tardiness. With the interest rate standing high, paying late can get quite expensive.
How exactly does this work? Imagine a £100,000 bill due on 31st January following your self-assessment tax return submission. The daily interest, according to RSM, would amount to £19.86 before April 6th, 2025. But starting that day, it escalates to £23.97 per day. Procrastinating for six months could jack up the interest to approximately £4,125, assuming the interest rate remains 8.25%.
In the face of these staggering numbers, you might wonder if the hike in late payment interest is justified. Critics contend that it feels like a "hidden tax rise". But why? Well, while the late payment interest rate skyrocketed, there's been no equivalent adjustment in the repayment supplement HMRC pays to those entitled to refunds. The repayment interest rate remains at a mere 3.25%, generating a hefty gap between what HMRC charges and repays.
Many taxpayers have reported delays in receiving refunds, with some waiting over a year for their dues. Should HMRC collect more while others wait, taxpayers argue for some form of compensation.
To avoid these charges, it's crucial to pay up on time. But if times are tough, engaging with HMRC is essential. Speaking up early can prevent interest and fines from piling up, as penalties of 5%, 5%, and 5% are typically added 30, 6, and 12 months past the due date, respectively.
So, pay up, speak up, and stay on top of your taxes to steer clear of these hefty expenses!
- To manage your wealth effectively, it's wise to consider investing in various financial aspects, such as property or pensions, while also keeping an eye on interest rates, such as the late payment interest rates set by the HMRC, to avoid any unexpected expenses.
- When it comes to personal finance, delaying the payment of your income tax is a move that could potentially drain your wealth due to the high late payment interest rates set by the HMRC, as opposed to the low repayment interest rate that HMRC pays to those entitled to refunds.
- In the realm of wealth-management, it's crucial to ensure timely payments of taxes to avoid additional charges, penalties, and interest rates that escalate significantly after the self-assessment tax return deadline, as the HMRC collects a substantial amount in late payment interests each year.
