People who failed to meet the January 31 self-assessment deadline are facing growing penalties and interest.

However, HMRC has made an adjustment to the interest rate on late payments in response to the Bank of England’s recent base rate reduction from 4.75% to 4.5%. As of February 17, the late payment interest rate decreased from 7.25% to 7%, which includes a 2.5% addition to the base rate, potentially benefiting 1.1 million customers.

Despite this slight decrease, tax expert Andy Wood of Tax Natives points out a notable disparity: “While this drop in HMRC’s late payment interest offers some relief, it’s hardly significant in the grand scheme of things. The real issue is that taxpayers still pay double the interest on late payments compared to what HMRC pays them in refunds. That’s a fundamental imbalance.”

Additionally, HMRC only offers 3.5% interest on tax overpayments, tied to the base rate minus 1%, but never less than 0.5%, resulting in indebted taxpayers being charged nearly twice the rate refunded to those owed.

Late taxpayers are accumulating penalties, with HMRC imposing a £100 fine for submissions up to three months late, increasing with longer delays and affecting high earners, particularly those earning over £150,000 who are required to file a tax return. Taxpayers who miss the deadline start with a £100 fine, which balloons with daily charges of £10 after three months, capping at £900.

Six months on and they’re hit with another charge, 5% or £300 – whichever costs more – and then again at twelve months. Mr Wood added gravely: “Beyond financial penalties, the longer a tax bill remains unpaid, the greater the risk of HMRC scrutiny. Late payments can flag taxpayers for further investigation, which can be time-consuming and costly.”

With April signaling the end of the current tax year, savers are urged to make full use of their financial allowances while they still can, reports the Express. That’s the yearly £20,000 ISA cap and up to £60,000 pension limit for the better-off people.

Those yet to file their return or pay off the taxman should get a wriggle on to dodge extra interest and late fees. Mr Wood urged: “The best course of action is to pay off any outstanding tax as soon as possible. While the interest rate drop provides a small benefit, penalties and potential investigations mean delaying further isn’t worth the risk.”

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