Taxman accused of cashing in on late payment interest

THE taxman has been accused of cashing in as its profits from late payments have more than doubled in a year.

HM Revenue and Customs (HMRC) made £346m in interest from taxpayers who paid late or arranged a “Time to Pay” payment plan in the year to October 2023 – a record amount and more than double the £159m it made the year prior, according to figures obtained by accountants RSM.

HMRC’S payment plans are available to people who cannot pay their tax bills on time. In total, figures show the tax office collected £638m in late payment interest over the three years from November 2020 to October 2023.

HMRC announced last week that between April 2023 and Jan 14, almost 45,000 people, totalling £148m in tax payable, have already agreed to set up a payment plan. But the cost of deferring tax payments has massively shot up as interest rates have increased.

The tax office charges taxpayers’ interest on the Bank Rate at the time (5.25pc since September) plus 2.5pc on any late payments, including time to pay arrangements, with its current rate of interest on late payments at 7.75pc. Typically these arrangements are for taxpayers with £30,000 or less in tax owed.

In October 2020 the tax authority made it easier for people to use its online time to pay service by increasing the threshold from £10,000 to £30,000. Prior to this, taxpayers who owed tax over the previous limit had to call HMRC to arrange delayed repayments.

Chris Etherington, of RSM, said: “HMRC may have thought increasing their interest charges would encourage more taxpayers to pay on time but instead they have benefited from a significant windfall, with the interest received in 2023 over double the year before.

“Some taxpayers may have been oblivious to the level of interest HMRC may apply and others may simply not had the means to pay earlier. It can end up compounding the difficulties for taxpayers facing money troubles.”

An HMRC spokesman said: “The interest we charge and pay is fair.

“It ensures people are not encouraged to overpay their tax to secure a higher interest rate than available commercially, while those paying late don’t get an unfair financial advantage over those paying on time.”