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HMRC late payments vs. re-payments interest rates

When did we quietly accept HMRC should make a profit on the margin between those types of interest?

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In one area (IHT), I was following an 'alert' that HMRC had increased the interest rate levied on late payments to 3.5% ... and noticed that they hadn't changed the interest rate payable alongside any re-payments (it remains 0.5%)!

So I looked up the history of these rates at https://www.gov.uk/government/publications/rates-and-allowances-inherita... and was stunned (it happens to me all too often nowadays) to discover that everything changed radically back in March 2009.

Prior to that date the two types of rate remained in sync (whether 1% or 11% or something inbetween) ... which is how I remember things (i.e. it wasn't part of HMRC's remit to make 'a turn' on any overdue payments vs re-payments).  But someone got greedy (Alastair Darling presumably) - and no-one has tackled the fiscal drag effect since then.

To save me more fruitless research, does anyone know what the equivalent position is (re rates for overdue payments and re-payments) in other areas - such as CGT, IT, etc?

Replies (15)

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By paul.benny
25th May 2022 08:44

The rates approximate to commercial rates (although clearly borrowing rates do vary considerably). To the extent that they deter people from seeing HMRC as a bank, I think a spread is appropriate.

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Replying to paul.benny:
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By Hugo Fair
25th May 2022 12:30

Fair enough.
But my main point (obviously not made clearly enough) was a niggle about the fiscal drag effect from not varying the %age paid on re-payments for over 13 years (whilst the %age added to late payments has risen to 3.5% - a factor of 7x)!
Will you have the same equanimity if/when the 3.5% rises to it's previous high of 11%?

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Replying to Hugo Fair:
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By paul.benny
25th May 2022 14:21

I stand by my point that those who borrow from or lend to HMRC should pay/earn something like a commercial rate. If commercial rates rise such that 11% is a fair approximation to that, then yes, those who pay late should be charged that rate.

In the old old days before penalties for late VAT filings and payments, there were those who used VAT liabilities as an easy low cost source of borrowings.

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By JCresswellTax
25th May 2022 10:18

They will also say the higher rate covers their costs in connection with reminding and collecting.

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By gillybean04
25th May 2022 10:39

To be precise, it's the treasury that set the interest rate and who receives the revenue.

https://www.gov.uk/government/publications/rates-and-allowances-hmrc-int...

But that page has more information. Including how the rate is set and also hints they're different to match what happens with other tax authorities and also in the commercial sector. In other words, banks pay paltry amounts on savings but can charge significantly more on borrowing.

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Replying to gillybean04:
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By Hugo Fair
25th May 2022 12:27

Thanks for the link to a more comprehensive page (which as you say addresses several of my questions).

However, I'm still a tad cynical when reading:
"The repayment interest rate (set at base rate minus 1%, with a lower limit of 0.5%) compensates taxpayers fairly, when they overpay or pay early, for loss of use of their money".

Hmm ... even when that 'loss of use' is due to HMRC taking forever to reimburse a repayment of estimated CGT which itself had to be paid within 60 days? 0.5%?

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paddle steamer
By DJKL
25th May 2022 13:50

Looking at an old Whillans re IT, CGT and NI,

6/2/996 to 30/1/97 prescribed rate 6.25%, repayment supplement 6.25% 6/2/96-5/2/97.

Then it splits:

31/1/97-5/8/97 Prescribed Rate 8.5%, Repayment supplement 6/2/97-5/8/97 4%

So Darling is innocent, this must have been John Major's Chancellor (who on earth was he, not very memorable as I cannot recall who he was)

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Replying to DJKL:
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By DKB-Sheffield
25th May 2022 14:05

DJKL wrote:

So Darling is innocent, this must have been John Major's Chancellor (who on earth was he, not very memorable as I cannot recall who he was)

Au contraire... very memorable indeed... it was Ken Clarke! That could, however, explain everything!

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Replying to DKB-Sheffield:
paddle steamer
By DJKL
25th May 2022 14:35

My memory is going, I had erroneously remembered pint drinking Ken as one of Thatcher's vegetables.

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Replying to DJKL:
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By Hugo Fair
25th May 2022 16:01

I think I preferred your "Darling is innocent" - which I can hear being announced by General Melchett in a whole range of compromising positions.

Whereas Ken 'hush puppy' Clarke can be summed by his tweet (during May's Brexit fiasco period):
"Cigars packed, Hush Puppies polished, now sharpening my sword for my trip to Westminster tomorrow. It’s time to get my weak, feeble, hesitant colleagues into line to actually make some bloody decisions. A Citizen’s Assembly, over my dead body!"
Never shy ... just not often effective either!

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Replying to DJKL:
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By HamishMackrell
27th May 2022 16:14

One my doctor clients keerps raving about 1988 and how Ken clarke did not listen and started to commercialise the NHS - so yes he was one of maggies creeps - the one weraring Hush puppies

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Replying to DJKL:
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By HamishMackrell
27th May 2022 16:14

One my doctor clients keerps raving about 1988 and how Ken clarke did not listen and started to commercialise the NHS - so yes he was one of maggies creeps - the one weraring Hush puppies

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RLI
By lionofludesch
26th May 2022 07:24

There's always been a bias in favour of the Government. Repayment supplement always started later that interest on late paid tax.

But, back in the day, you could get some very decent wedges of interest from FA78, s30 claims (early years losses).

Ah - those were the days!

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By Parkmeister
27th May 2022 11:31

I suspect part of reasoning was probably that the rates of interest paid to savers by banks had fallen to that sort of level and HMRC needn't pay more to people than they would get if the funds were held in their own deposit accounts.

However, there are other ways that people can put their money to work. What's more, for many, funds held by HMRC are funds which people cannot used to reduce the amounts they are actually borrowing from the banks at the far higher borrowing rates.

In the current situation, money sat on by HMRC is dropping in value by c. 10% per annum whilst people are denied the opportunity to use it or invest it to shelter it from inflation.

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By moneymanager
29th May 2022 12:34

"banks or reduced rates", how did they do that, could it be because of the taxpayer's largesse in allowing the provision of funds at near zero cost by the BoE to the commercial banks, that "provision" is nothing more than a collosal dilution of the venerable "Pound in your pocket", just kicking the can down the road.

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