HMRC has criticized the ‘unfair’ interest rate gap as taxpayers charged 7.75% but only pay 2.75%

HM Revenue & Customs has received fresh criticism for what tax experts describe as a “gross” imbalance between the interest charged to taxpayers and the amount paid in returns, raising wider concerns about the trust, transparency and efficiency of the UK tax system.

According to an analysis from auditing, tax and consulting firm Blick Rothenberg, taxpayers who fall behind on payments are currently charged daily late payment interest at a rate of 7.75%. In contrast, those owed money by HMRC receive interest at just 2.75 per cent on payments, even when the delay lasts for months.

Tom Goddard, assistant manager at the company, said the imbalance creates a system that appears to be heavily weighted in favor of the tax authorities. He pointed out that while taxpayers face increasing financial penalties for delays, HMRC itself is not subject to the same consequences when payments are slow.

The disparity becomes more pronounced when fines are factored in. Taxpayers who fail to pay their debts within 12 months can face additional charges of up to 15 percent of the outstanding amount, as well as other penalties if tax returns are submitted late. In contrast, there is no comparable compensation mechanism where HMRC delays payment, 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 payments to be processed. In one instance, a client missed out on a valuable investment opportunity after funds earmarked for remittance were tied up in a lengthy HMRC payment process. Despite repeated attempts to resolve the issue, delays continued due to internal management issues and a lack of clear ownership within the organization.

The broader concern, he suggested, is not only the financial disparity but the operational conflict involved in conflict resolution. Taxpayers seeking refunds often face a long and complicated process, involving multiple departments and repeated follow-ups. For many, the cost of the professional advice required to navigate the system can outweigh any financial benefit from the fee itself.

These variable risks create the impression that the system is ineffective and contradictory. Although HMRC says the delays are mainly due to administrative pressures, critics argue that the burden of such inefficiencies falls squarely on taxpayers, especially at a time when many people and businesses are already under financial pressure.

The issue also raises questions about HMRC’s wider reform programme. One of the important things mentioned in the “Transformation Roadmap” is to improve the daily operations of individuals and businesses, by switching to an automated, digital-first system that aims to handle up to 90 percent of inquiries.

While digitization is expected to streamline processes and reduce costs by an estimated £20 billion a year in tax administration, there are doubts about whether it will address service challenges. Critics argue that without adequate investment in technology and support, automation alone may not solve 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 rebuilding confidence in the system is equally important. They say, a balanced approach to interest rates and compensation may encourage greater cooperation and compliance with taxpayers.

There is also an ethical aspect to consider. If taxpayers perceive the system as inequitable, they may be less inclined to engage proactively with HMRC or prioritize timely compliance. Conversely, a system that treats delays on both sides equally can foster a more cooperative relationship between the tax authority and those it serves.

However, for now, the inequality of interest rates remains controversial. As scrutiny of HMRC’s performance grows, pressure is likely to grow for reforms that address both financial inequality 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 operate effectively.