When it comes to understanding contractors’ needs, there is none better that 1st Contact. Specialists when it comes to local business, we realise that our current economic climate represents a challenge to everyone. Current issues which affect our clients are often not reported by the news, so we are running a series of news stories to reflect that.HMRC has changed the rates of interest it charges for late tax payments. Some of the changes came into effect on 16 March, the rest will take effect on 24 March 2009.
- The interest rate is reduced to 2.5% from 3.5% for late Income Tax, NI contributions, Capital Gains Tax and Stamp Duty. The interest rate applied to over-payments stays at 0%.
- Inheritance Tax has changed to 0% for late payments and repayments.
- Interest on Corporation Tax installments which have been underpaid is reduced by 0.5% to 1.5%. Corporation Tax installments which have been overpaid now have an interest rate of 0.25% – it was previously 0.75%. This rate also applies to Corporation Tax not paid by installments which has been paid early.
- The unpaid Corporation Tax rate is now 2.5%.
- If VAT, Air Passenger Duty, Insurance Premium Tax, Landfill Tax, Climate Change Levy or Aggregates Levy has been under declared, the interest rate is now 2.5%, having been 3.5% previously.
What you may not be aware of however, is that the interest rate applied to over-payments has been 0% for almost everything since January (except for Corporation Tax – which has slightly different rules) – which according to HMRC, is in line with the low interest rate set by the Bank of England.
There have always been differences between the amount of interest charged for late payments and the interest paid by HMRC in the case of over-payments. Now that the latter stands at zero, many feel angered that there will no longer be any recompense for taxpayers who have over-paid, and that there is no incentive for HMRC to process repayments promptly.
A trade body which represents contractors has been outspoken in its criticism of the situation. Managing Director of the Professional Contractors Group, John Brazier, is quoted as saying “This cannot possibly be right! HMRC cannot expect to arrange the rules to disadvantage taxpayers in this way and not expect its reputation with taxpayers to deteriorate even further.” he went on to say “There is much to do if HMRC is ever to regain the faith of small business taxpayers. Vastly improved safeguards will be essential, but admitting that it is not fair to short change taxpayers when HMRC owe them money would be a start.”
Legislation which allows HMRC to adjust interest rates more quickly came into effect in January 2009. This means that changes can take place 13 working days after the Bank of England meets to decide rates, previously this change would take around 4 weeks to come into effect.
There may be light at the end of the tunnel, however. Legal experts believe that the 0% interest on tax over-payments may well contravene European law, so we shall await further developments with interest (no pun intended!).
1st Contact are experts in these matters and can help you get your taxes right as a contractor, so if you have any worries about the issues raised by the HMRC interest rate changes, please get in touch and we will do our best to help.
1st Contact Tax offers specialist tax services to contracting professionals
These services include: Contractor Accounting, Contractor Umbrella payroll, Personal Tax for Contractors, Limited Companies for Contractors and Contractor Financial Advice