From April this year, the interest rate on late payment of tax is set to increase by a further 1.5%.
There’s been criticism about the fact that there is no equivalent increase in interest on overpaid tax.
The Chartered Institute of Taxation (CIOT) is calling on the government to address the ‘unfair’ tax rules.
Richard Wild, CIOT’s Head of Tax Technical, explained, “It is possible for a taxpayer to under-declare an amount of VAT due to HMRC, in circumstances where that VAT is reclaimable by a third party, such as the taxpayer’s customer.
“Under the previous interest regime, the principle of commercial restitution could be applied, providing HMRC with discretion not to charge interest in these circumstances, because there had been no loss to the Exchequer.

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“Under the present system, HMRC no longer has statutory discretion to not charge interest in these circumstances. So, interest is now being charged in situations where there is no net loss of tax.
“We do not understand this to be a deliberate decision on the previous government’s part, but it is vital that this unfairness is removed and commercial restitution reinstated.”
Richard added, “We are calling on the government to consult on the rate and approach to repayment interest on overpaid tax. It is vital to ensure that repayment interest provides adequate and fair 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.”
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