HM Revenue & Customs has come under fresh criticism over what tax experts describe as a “deeply unfair” imbalance between the interest it charges taxpayers and the rate it pays on refunds, raising wider concerns about trust, transparency and the efficiency of the UK’s tax system.
According to analysis from audit, tax and advisory firm Blick Rothenberg, taxpayers who fall behind on payments are currently charged daily late payment interest at a rate of 7.75 per cent. By contrast, those owed money by HMRC receive interest at just 2.75 per cent on repayments, even when delays stretch over many months.
Tom Goddard, assistant manager at the firm, said the disparity creates a system that appears heavily weighted in favour of the tax authority. He argued that while taxpayers face escalating financial penalties for delays, HMRC itself is not subject to equivalent consequences when repayments are slow.
The imbalance becomes more pronounced when penalties are factored in. Taxpayers who fail to settle liabilities within 12 months can face additional charges of up to 15 per cent of the outstanding amount, alongside further penalties if tax returns are submitted late. In contrast, there is no comparable compensation mechanism when HMRC delays repayments, even in cases where individuals or businesses suffer financial consequences as a result.
Goddard pointed to the real-world impact of these delays, citing cases where taxpayers have waited more than a year for repayments to be processed. In one instance, a client missed a significant investment opportunity after funds earmarked for deployment were tied up in a prolonged HMRC repayment process. Despite repeated attempts to resolve the issue, the delay persisted due to internal administrative complications and a lack of clear ownership within the organisation.
The broader concern, he suggested, is not only the financial disparity but the operational friction involved in resolving disputes. Taxpayers seeking to reclaim funds often face a lengthy and complex process, involving multiple departments and repeated follow-ups. For many, the cost of professional advice required to navigate the system can offset any financial benefit from the repayment itself.
This dynamic risks creating a perception that the system is both inefficient and adversarial. While HMRC attributes delays largely to administrative pressures, critics argue that the burden of those inefficiencies falls disproportionately on taxpayers, particularly at a time when many individuals and businesses are already under financial strain.
The issue also raises questions about HMRC’s broader transformation agenda. One of the stated priorities in its “Transformational Roadmap” is to improve day-to-day performance for individuals and businesses, with a shift towards a more automated, digital-first system intended to handle up to 90 per cent of queries.
While digitalisation is expected to streamline processes and reduce the estimated £20 billion annual cost of tax administration, there is scepticism about whether it will address underlying service challenges. Critics argue that without sufficient investment in expertise and support, automation alone may not resolve delays or improve outcomes for taxpayers.
Trust remains a central theme in the debate. HMRC has identified closing the UK’s £46.8 billion tax gap as a key objective, but advisers suggest that rebuilding confidence in the system is equally important. A more balanced approach to interest rates and compensation, they argue, could encourage greater cooperation and compliance from taxpayers.
There is also a behavioural dimension to consider. If taxpayers perceive the system as inequitable, they may be less inclined to engage proactively with HMRC or prioritise timely compliance. Conversely, a system that treats delays on both sides more evenly could foster a more collaborative relationship between the tax authority and those it serves.
For now, however, the disparity in interest rates remains a point of contention. As scrutiny of HMRC’s performance intensifies, pressure is likely to grow for reforms that address both the financial imbalance and the operational challenges that underpin it.
Without such changes, critics warn, the gap between policy intent and taxpayer experience will continue to widen, undermining confidence in a system that relies on voluntary compliance to function effectively.
