Seb Maley CEO of Qdos speaks his mind about the discrepancy between HMRC's late payment charges and refunds
HMRC’s reduced interest on late payments hides the refunds “elephant in the room” says one contractor sector specialist
The UK tax authority, HMRC, recently announced a reduction in the interest rate charged on late tax payments, effective from the 18th of November. This change, from 7.5% to 7.25%, follows the Bank of England’s decision to lower the base rate. While seemingly good news, this minor adjustment obscures a significant issue for freelancers and self-employed workers: the disparity between interest charged on late payments and that offered on tax refunds.
Currently, HMRC charges 7.25% interest on overdue tax liabilities while providing only 3.75% interest on refunds. This discrepancy effectively allows HMRC to profit at the expense of taxpayers, particularly those who may face unexpected financial challenges or delays in receiving payments. According to HMRC, you may not get a refund if you have tax due in the next 45 days (for example for a payment on account). Instead, the money will be deducted from the tax you owe.
It is crucial for freelancers and self-employed individuals to understand the implications of this interest rate differential. While the reduced late payment interest rate might seem appealing, the focus should remain on timely tax compliance to avoid incurring penalties and interest charges altogether.
Qdos, a tax insurer for the self-employed, urges taxpayers to prioritise timely tax submissions ahead of the 31st of January self-assessment deadline. By proactively managing their tax affairs, freelancers and self-employed workers can mitigate the risk of late payments and ensure they receive the full amount of any tax refunds due to them as previously reported by The Freelance Informer.
“With HMRC’s interest rates linked to the Bank of England base rate, it’s no surprise they’re being recalculated,” says Qdos CEO Seb Maley. “And, following consecutive hikes in recent years, seeing them fall further is obviously a welcome development.”
Maley says the real talking point here – and the “elephant in the room – is the difference between the interest rate HMRC charges and the one it offers on refunds.”
He says, “HMRC might well argue this approach is consistent with the other tax authorities around the world, but it does seem somewhat unfair – and the self-employed are disproportionately affected.
“With January’s self-assessment deadline approaching, this throws the issue into even sharper focus. More than ever, it’s important that self-employed taxpayers are aware of the costs of late filing and payment – and take every step possible to ensure their tax compliance during the self-assessment.”
Related articles:
HMRC to hike interest on tax debts in £500m tax grab – Freelance Informer
➡️Are you affected by late tax payments because of late-paying clients, an emergency or sky-high supply costs?
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