THOUSANDS of households could be granted relief on tax bills from today as the interest charged on late payments has reduced.
HM Revenue & Customs (HMRC) charges interest on unpaid taxes at a level linked to the Bank of England base rate.
Earlier this month, the Bank of England reduced its base rate to 5% – the first cut to the rate since March 2020.
Similarly, the fall in the interest rate charged on late payments to HMRC follows 16 consecutive increases since April 2020, and will come as a huge relief to many.
Back in April 2020, the interest charged on late payments stood at 2.6%.
But over the last four years it has increased to a high of 7.75%, where it had remained since August 2023.
But, from today the rate will be reduced by 0.25% to 7.5%.
This means that customers who don’t pay their taxes on time will now be charged interest of 7.5%, down from the previous rate of 7.75%.
So if you have £1,000 of outstanding payments for one year you will now be required to pay back £1,041.09, rather than £1,042.47.
And, this could indicate further falls in the future.
These recent changes will affect late payments for the majority of personal taxes.
Taxes include income tax, National Insurance (NI) contributions, capital gains tax, stamp duty and inheritance tax.
You’ll be liable for late payment charges from the date the payment was due until the date at which HMRC receives the payment.
Robert Salter, a director with Blick Rothenberg accountants, auditors and tax advisors said: “The interest charged by HMRC on underpaid income tax and NI contributions, or indeed other taxes too, is in effect linked to the Bank of England’s official rate of interest.
“As the official Bank of England interest rate has increased from a rate of 0.1% in March 2020 to 5.25% in August 2023 – though it has fallen back to 5% in the last two weeks or so – the interest imposed by HMRC has basically matched this trend.
“Hence while late payment interest was only charged at a rate of 2.6% in April 2020 (during the start of Covid, for example), this rate increased to 7.75% in the second half of 2023 and has now fallen back slightly to 7.5% from August 2024.”
Mr Salter stressed that the only “guaranteed” way to avoid the paying interest on taxes is to ensure all payments due to HMRC are made ahead of deadlines.
Payments from 2022/2023 UK tax returns should have been paid to HMRC in two equal instalments on January 31 2024 and July 31 2024.
HMRC links its interest rates on late payment charges with the Bank of England’s base rate.
Late payment interest is set at the base rate plus 2.5%.
The best thing you can do to avoid the new late repayment fee is to make sure your taxes are paid up on their set due date.
You’ll only be charged the repayment interest rate if you pay up on time which will be 3.5% points lower than the late repayment fee.
Self-assessment is a system HMRC uses to collect income tax.
Tax is usually deducted automatically from wages, pensions and savings, but people and businesses with other incomes must report it in a tax return.
This applies to the following:
Before you can complete and submit your tax return, you’ll need to have a so-called unique taxpayer reference (UTR) and activation code from HMRC.
This can take a while to receive, so if it’s the first time you’re completing self-assessment, make sure you register online immediately and ask HMRC for advice.
To sign in or register visit the “Self Assessment tax return” section of HMRC’s website.
If you’ve already signed up for self-assessment, you can find your UTR on relevant letters and emails from HMRC.
HMRC accepts your payment on the date you make it, not the date it reaches its account – including on weekends.
If you need to change your tax return after you’ve filed it, you can do so within 12 months of the original deadline or you can write to HMRC for any changes after that.
Filling in your tax return can seem daunting, but with our step-by-step guide you’ll have it sorted in no time.
You should get in touch with HMRC and let them know you’re having issues making your payments. They may allow you to spread the repayments out over time.
Citizens Advice recommends that you ask to talk about a “time to pay agreement”.
This agreement will give you either more time to pay, or a schedule to pay your tax in instalments.
It’s a good idea to do this rather than bury your head in the sand.
You can contact HMRC online or by phone on 0300 200 3300.
You can also write to them at:
Pay As You Earn and Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom
There are several groups which can help you with your problem debts for free.
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations – don’t be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don’t need to pay.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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