In a Budget representation, the CIOT has outlined the often criticised differential between late-payment interest (charged by HMRC when the taxpayer is late) and repayment interest (paid by HMRC to the taxpayer, where the taxpayer overpays/pays early).
That differential (currently 3.5%) has once again come into focus in recent years, following multiple rises in the bank base rate. Late-payment interest is set at base rate plus 2.5%, with repayment interest set at base rate minus 1% but subject to a minimum 0.5% floor.
For self-assessment, the CIOT gives an example where a taxpayer who pays 12 months late is charged nearly twice the interest HMRC have to pay where it takes a similar amount of time to make a repayment, noting that the late-paying individual will also be hit with late-payment penalties which, when taken together with the interest, represent in the order of six times the amount of recompense payable by HMRC (mostly because HMRC are not subject to penalties for late repayment).
The CIOT urges the government to consult on the rate and approach to repayment interest on overpaid tax, ‘to ensure that repayment interest provides adequate recompense for the loss of the use of the monies by the business or individual concerned, and an adequate incentive for HMRC to process repayments in a timely fashion (and a ‘penalty’ if they do not)’.
The submission also discusses a related point specific to VAT where, under the current rules, HMRC will charge interest in situations where there is no net loss to the Treasury (where the taxpayer under-declares VAT due, but where that VAT is reclaimable as input tax by another party in the chain). Statutory discretion for HMRC not to charge interest in such a scenario should be reinstated, suggests the CIOT.
In a Budget representation, the CIOT has outlined the often criticised differential between late-payment interest (charged by HMRC when the taxpayer is late) and repayment interest (paid by HMRC to the taxpayer, where the taxpayer overpays/pays early).
That differential (currently 3.5%) has once again come into focus in recent years, following multiple rises in the bank base rate. Late-payment interest is set at base rate plus 2.5%, with repayment interest set at base rate minus 1% but subject to a minimum 0.5% floor.
For self-assessment, the CIOT gives an example where a taxpayer who pays 12 months late is charged nearly twice the interest HMRC have to pay where it takes a similar amount of time to make a repayment, noting that the late-paying individual will also be hit with late-payment penalties which, when taken together with the interest, represent in the order of six times the amount of recompense payable by HMRC (mostly because HMRC are not subject to penalties for late repayment).
The CIOT urges the government to consult on the rate and approach to repayment interest on overpaid tax, ‘to ensure that repayment interest provides adequate recompense for the loss of the use of the monies by the business or individual concerned, and an adequate incentive for HMRC to process repayments in a timely fashion (and a ‘penalty’ if they do not)’.
The submission also discusses a related point specific to VAT where, under the current rules, HMRC will charge interest in situations where there is no net loss to the Treasury (where the taxpayer under-declares VAT due, but where that VAT is reclaimable as input tax by another party in the chain). Statutory discretion for HMRC not to charge interest in such a scenario should be reinstated, suggests the CIOT.
