Invest with HMRC?!

Following the reduction in base rate in August from 0.5% to 0.25%, HMRC have amended the interest rate due on late paid tax.

HMRC have reduced all interest charge rates from 3% to 2.75% with effect from 23 August apart from late quarterly corporation tax instalments where the rate has reduced from 1.5% to 1.25% with effect from 16 August.

The interest rate paid by HMRC on overpaid tax refunded after the normal due date remains at 0.5% as the formula sets a minimum rate of 0.5%. We wonder how long it will be before that rule is changed as we all know how hard it is to get a decent interest rate.

So HMRC may be a good place to invest one’s money! For personal taxpayers in particular it might be best to not make claims to reduce payments on account as HMRC pay supplement on the overpaid element of a payment on account, from the date the payment was due to the date that repayment was made.

Any interest supplement paid is tax free as well and does not have to be declared on a tax return so is equivalent to a rate of interest of 0.625% for a basic rate taxpayer who has no exempt band of interest left or 0.833% for a higher rate tax payer or 0.909% for an additional rate taxpayer.