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Tuesday, 07 February 2023 / Published in HMRC, Interest Rates

HMRC will raise interest rates on tax debt to 6.5% from 21 February following latest increase in base rate

The late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on will rise to:

  • late payment interest rate — 6.5% from 21 February 2023
  • repayment interest rate — 3% from 21 February 2023

This means that the late payment interest rate will increase by 0.5% to 6.5% from 21 February. The rate last increased to 6% on on 6 January. This is the highest rate since the start of the financial crisis in November 2008.

Late payment interest is payable on late tax bills covering income tax, National Insurance contributions, capital gain tax, stamp duty land tax, stamp duty and stamp duty reserve tax. The corporation tax pay and file rate also increases to 6%.

Repayment interest will also be increased from the current 2.5% rate to 3%.

Corporation tax self assessment interest rates relating to interest charged on underpaid quarterly instalment payments rises to 5%.

The interest paid on overpaid quarterly instalment payments and on early payments of corporation tax not due by instalments rises to 3.75%.

Tuesday, 24 January 2023 / Published in HMRC, Tax Investigation

Nadhim Zahawi has agreed to pay millions of pounds in tax to HMRC following a dispute over his family’s financial affairs

The former chancellor has agreed to pay a seven-figure sum to the tax authority to settle a tax dispute totalling £3.7m related to his family trust, Balshore Investments.

In July, HMRC examined the tax affairs of MP Nadhim Zahawi after an inquiry was launched by the National Crime Agency (NCA) in 2020.

The Serious Fraud Office (SFO) had also investigated Zahawi’s finances, according to a report in the Independent.

The investigation probed Zahawi’s involvement in a scheme to avoid tax by using an offshore company to hold shares in YouGov – the polling company he co-founded.

His family trust, Gibraltar-registered Balshore Investments, held a stake worth more than £20m, but sold up in 2018, with the proceeds being transferred to an unknown recipient.

Tax Policy Associates, a think tank, has estimated that Balshore’s sale of YouGov shares should have incurred capital gains tax (CGT) of about £3.7m.

Zahawi has insisted that he ‘does not have, and never has had’ an interest in Balshore Investments and that he was ‘not a beneficiary’.

A spokesperson for Zahawi said: ‘As he has previously stated, Mr Zahawi’s taxes are properly declared and paid in the UK. He is proud to have built a British business that has become successful around the world.’

Contesting the news, Zahawi stated: ‘There have been news stories over the last few days which are inaccurate, unfair and are clearly smears. It’s very sad that such smears should be circulated and sadder still that they have been published.

‘These smears have falsely claimed that the Serious Fraud Office (SFO), the National Crime Agency (NCA), and HMRC are looking into me. Let me be absolutely clear. I am not aware of this. I have not been told that this is the case.

‘I’ve always declared my financial interests and paid my taxes in the UK. If there are questions, of course, I will answer any questions HMRC has of me.’

Labour chair Anneliese Dodds has said there were ‘serious questions’ for Zahawi to answer, saying: ‘Why did Nadhim Zahawi claim last summer that he had paid his taxes in full, and that he wasn’t aware of an investigation? When was he made aware of an investigation? Was the prime minister aware of an investigation when he appointed Nadhim Zahawi to the cabinet?’  

Tuesday, 24 January 2023 / Published in Inflation

The rate of inflation was down fractionally to 10.5% in December from 10.7% the previous month as energy and food prices remained high

Inflation eased slightly to 10.5% in December, down from 10.7% in November and a 41-year high of 11.1% in October.

The easing in the annual inflation rate reflected price drops in transport costs as petrol and diesel prices fell. There were also limited price falls in clothing and footwear, and recreation and culture, , according to the latest figures from the Office for National Statistics (ONS)..

Prices at restaurants and hotels continued to grow and made the largest impact on the inflation figures, followed by food and soft drinks. Food prices rose 16.8% in the year to December, reaching the highest level seen since 1977.

The current inflation rises in the economy is largely due to supply chain problems linked to Covid-19 and Russia’s invasion of Ukraine, which has exacerbated the cost of energy and all other goods that require energy input.

Annual inflation rates for the consumer price index (CPI) including occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to December 2022, down from 9.3% in November.

Yael Selfin, chief economist at KPMG UK, said: ‘We expect inflation to continue falling throughout this year, reaching the Bank of England’s 2% target by mid-2024.

‘Falling inflation will also come as a relief to Bank of England’s policymakers who may see this is an opportunity to slow the pace of further rate rises. With the effects of past rate rises still passing through the UK economy, we could see the base interest rate peak at 4% in the first quarter of the year.’

The Bank of England is expected to increase interest rates next month by 0.5% as it struggles to bring inflation down to the 2% target.

Commenting on the figures, ONS chief economist Grant Fitzner, said: ‘Inflation eased slightly in December, although still at a very high level with overall prices rising strongly during the last year as a whole.

‘Prices at the pump fell notably in December, with the cost of clothing also dropping back slightly. However, this was offset by increases for coach and air fares as well as overnight hotel accommodation. Food costs continue to spike with prices also rising in shops, cafes and restaurants.’

Average petrol and diesel prices stood at £1.55 and £1.79 per litre in December and were last lower in February 2022, when petrol was £1.47 per litre, and in April 2022, when diesel was £1.76. Fuel prices rose by 11.5% in December, down from 17.2% in November.

While inflation is easing slightly, there is considerable pressure on households.

Alpesh Paleja, the CBI’s lead economist, said: ‘The cost of living crisis will continue to be a very real problem for both households and businesses, as price pressures remain high in the short term. Against the backdrop of a recession, firms will continue to face higher costs and weak demand conditions.’

Monday, 12 December 2022 / Published in VAT

HMRC’s new penalty regime for late filing and late payments of VAT will be fairer but more complex with interest being charged on all late payments

From 1 January 2023, HMRC will introduce a fixed rate, points based penalty system for VAT submissions. Initially HMRC has said there will be a ‘light touch’ approach to the new regime in the first year of operation.

Under the new rules, there will be a single penalty point for each late submission of a VAT return. When a business has exceeded the points threshold, a fixed rate penalty of £200 will be issued for each subsequent late return.

For businesses on standard quarterly returns the threshold is four points in any two-year period. For those on monthly returns, it will be five points and for those submitting annual VAT returns, just two points.

Points will be reset to zero when all returns have been filed and there has been a continuous period of good compliance (12 month for quarterly filings, six months for monthly filings and 24 months for annual filings).

Alan Pearce, VAT partner at Blick Rothenberg said: ‘The new regime will be fairer to businesses by penalising those that persistently file and pay late, rather than those that make the odd slip up.

‘It will replace the current default surcharge regime that has been widely criticised for levying significant penalties where payment is only one day late. However, unlike the current regime, there will be a more complex multi-tier penalties system with interest also being charged on all late payments.’

The new regime will effectively have four different types of charges:

  • a fixed penalty amount for late filings based on a points system (a similar concept to totting up points for driving offences);
  • an initial two-part fixed rate penalty for late payments of 2% and 4% (applying to the first 15 and 30 days);
  • ongoing 4% daily interest-based penalty (applying after 30 days); and
  • interest charged at 2.5% above the Bank of England base rate (applying from the outset).

‘The new penalty regime is more complicated than the current default surcharge regime. However, it appears to be fairer to those businesses that might occasionally pay late and rewards those that do their best to pay outstanding tax as early as possible,’ added Pearce.

‘Under the current rules businesses are often hit with large surcharges of between 2% and 15% for simply being one day late. This can often be caused by a one-off administration error or banking delay.

‘The change should therefore be welcomed and should avoid the need for many default surcharge appeals where the amount of the penalty is disproportionate to the amount and timing of the late payment.

‘For many defaulters, the new rules will result in a relatively small penalty and interest having to be paid. However, for businesses that persistently fail to submit their VAT returns on time and are frequently more than 30 days late in paying, they will suffer the highest level of penalties and interest. It seems that HMRC have struck a balance of penalising serial offenders more heavily while incentivising compliance and being more lenient on those that make the occasional slip up.’ 

Pearce expanded on the ‘light touch’ approach in year one.

He added: ‘HMRC has announced it will apply a “light touch” for the first year of operation. Specifically, where a business is doing its best to comply, HMRC will waive the first 2% fixed penalty for VAT periods up to the end of 2023.

‘This effectively means that provided payments is received within 30 days of the due date (or, during this period, an approach to HMRC has been made for a time to pay application) penalties can be avoided. However, even where agreement is reached with HMRC, interest will still apply.’

Penalty points threshold

Submission frequency Penalty points thresholdPeriod of compliance
Annually224 months
Quarterly 412 months
Monthly56 months
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