With effect from the 27th January, HM Revenue & Customs has decided to reduce the interest that they pay out to 0%. People that have made overpayments to HMRC in regard to their income taxes, National Insurance contributions, stamp duty, and even capital gains taxes will no longer collect any interest on the amount before it is refunded to them.
Before this change was made by HMRC, a person could expect interest at the rate of .75% to be added to any overpayment amount that they might have made. The Bank of England’s recent decision to reduce the base rate is believed to be the reason for HMRC’s decision to pay 0% interest.
People that find themselves in the position of owing money to HMRC will still have to pay interest. The rate of interest that they will owe has dropped a bit to 3% from 4.5%.
The inflation rate right now is estimated to be about 3.1%. With the interest rate being paid by HMRC now at 0%, people will actually experience a decrease in the value of the money that they are owed while they go through the refund process.
A partner at a tax firm, Rupert Shiers, noted that “This [reduction of interest] will cost companies who have to estimate their tax and pay it upfront throughout the year to HMRC a lot of money. These companies frequently find that they have overpaid HMRC and the interest payments are important to them.”