Taxman accused of cashing in on struggling workers
The UK tax authority, HM Revenue & Customs (HMRC), is facing backlash for charging excessive interest rates on tax bills that workers can't pay on time. According to a freedom of information request, HMRC collected a record £346 million in interest from taxpayers who made late payments in the year to October 2023, a significant increase from the previous year's £159 million. Around 1.4 million taxpayers made late payments in the tax year 2020/21, and assuming this figure remained consistent, they were charged an average of £247 each in interest last year and £456 over the past three years.
Soaring interest rates contribute to higher costs
As interest rates have risen in recent years, the cost of delaying tax payments has skyrocketed. HMRC charges interest based on the Bank of England's rate, plus an additional 2.5 percentage points. With the current bank rate at 5.25%, taxpayers who pay their tax late now face a hefty 7.75% interest rate. In contrast, HMRC only pays 4.25% interest to customers when it owes them money, such as tax refunds.
Financial struggles compounded by high rates
Chris Hetherington, an expert from accountancy firm RSM, warns that taxpayers who are already facing financial difficulties may be unaware of the high interest rates charged by HMRC for late payments. This unawareness can lead to compounding financial difficulties and a potential debt spiral. Hetherington suggests that HMRC should consider reducing these high rates for taxpayers who engage with them and set up a repayment plan.
HMRC defends its approach
An HMRC spokesperson defended the interest rates, stating that they are fair and prevent taxpayers from overpaying their tax to secure higher interest rates than those available commercially. The spokesperson also emphasized the importance of not giving an unfair financial advantage to those who pay late compared to those who pay on time.
Struggling to pay your tax bill? Here's what you can do
If you're having difficulty paying your tax bill, you can set up a "Time to Pay" plan with HMRC to repay it over time. While you will be charged interest, setting up a plan ensures that you won't face penalties for late payment. You can apply online through your Government Gateway account or by visiting the HMRC website. It's worth noting that you can only set up a payment plan if HMRC determines that you'll be able to keep up with the repayments. If an affordable amount cannot be agreed upon, HMRC will require you to pay in full.
To register for a Government Gateway account, you'll need your National Insurance number and two of the following: a valid UK passport, a UK photocard driving licence, a payslip from the last three months (or a P60 from your employer), details of a tax credit claim, details from a self-assessment tax return, or your credit record information.
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