HM Revenue and Customs (HMRC) says no more interest on tax refunds
From January 27 2009, people who pay too much income tax, capital gains tax, stamp duty, and national insurance won’t receive any interest on the money held by the Revenue while they wait for a refund.
Previously HMRC would pay returns of 0.75%, but the rate was reduced following the recent cut in the Bank of England base rate.
The new 0% rate has already come into force for companies which overpay corporation tax.
However, HMRC did confirm that the interest it pays can never be negative.
The law states that the Revenue has to pay a commercial rate of interest on tax that has been overcharged but with this rate now at 0% and inflation running at 3.1%, people who have paid too much tax will actually see the value of their money fall in real terms while they wait for a refund.
However if you owe tax to HMRC the interest rate on that money has now been eased from 4.5% to 3%.
A Revenue spokeswoman said: ‘If the interest rate on overdue tax was too low, it might encourage people to treat HMRC as a source of cheap credit.
‘If the interest rate on overpaid tax was too high, it might encourage ‘banking’ with HMRC.’
‘The rate of interest on overpaid tax reflects the average commercial rate for a return on deposits.
‘No commercial body has the same rates for both paying and charging interest.
Ian Robinson, senior researcher at Which? said: ‘This announcement makes it even more important for people to file their tax return in time.
‘The final date for filing online is January 31st so if you haven’t paid your tax by then, it could end up costing you more.’
© Press Association 2009
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