Warning as thousands could be hit with HUGE tax bill charges after rate hike – how to avoid it
THOUSANDS of people could be slapped with a huge bill after the interest charged for late tax payments is hiked in days.
HM Revenue & Customs (HMRC) charges interest on unpaid taxes and this interest rate is set to hit a 13-year high in a matter of days.
Customers who don't pay their taxes on time will now face a 4.25% late payment fee, up from the current rate of 3.75%.
Part of the late payment rates are linked to the base rate, so they change frequently.
HMRC said: "The late payment interest rate encourages prompt payment.
"It ensures fairness for those who pay their tax on time."
This will affect late payments for the majority of personal taxes and will affect the millions of people who have to file their own tax return.
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Taxes include income tax, national insurance contributions, capital gains tax, stamp duty and inheritance tax.
The rise will come into force on Tuesday August 23 and will see the late payment interest rate rise by 0.5 percentage points from its current level of 3.75%.
The new interest rate up by 1.5% points since the start of the year.
In January, late payment interest was charged at 2.75%.
You'll be liable for late payment charges from the date the payment way due until the date at which HMRC receives the payment.
How is the late payment interest rate calculated?
HMRC links its interest rates on late payment charges with the Bank of England's base rate.
Late payment interest is set at the base rate plus 2.5%.
The base rate increased from 1.25% to 1.75% earlier this month to try and counter rampant inflation which is predicted to hit 13% by the end of the year.
How to avoid the high fee
The best thing you can do to avoid the new late repayment fee is to make sure your taxes are paid up on their set due date.
You'll only be charged the repayment interest rate if you pay up on time which will be 3.5% points lower than the late repayment fee.
How do you know if you need to submit a tax return?
Self-assessment is a system HMRC uses to collect income tax.
If you've already signed up for self-assessment, you can find your UTR on relevant letters and emails from HMRC.
HMRC accepts your payment on the date you make it, not the date it reaches its account - including on weekends.
If you need to change your tax return after you've filed it, you can do so within 12 months of the original deadline or you can write to HMRC for any changes after that.
Filling in your tax return can seem daunting, but with our step-by-step guide you'll have it sorted in no time.
What to do if you can't pay right now
You and let them know you’re having issues. They may allow you to spread your payments.
Citizens Advice recommends that you ask to talk about a ‘time to pay agreement’. An agreement will give you either more time to pay, or a schedule to pay your tax in instalments.
It’s a good idea to do this rather than bury your head in the sand.
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You can also write to them at:
Pay As You Earn and Self Assessment
HM Revenue and Customs
BX9 1AS
United Kingdom