Interest charges – find out when HMRC might reduce them

When and why do HMRC charge interest?

If you pay your tax bill or a penalty (for example, for late submission of a self assessment tax return) late, HMRC charge interest on the late payment. HMRC are legally required to charge interest from the date the tax or penalty is due to the date HMRC receive payment.

  An interest charge is not a penalty.

HMRC charge interest to recognise that you have had the use of the money in the period following the due date. The aim is to put you and HMRC in a similar commercial position to that which you would have been in had you paid the tax on time.

If you pay your tax or a penalty on or before the due date, you are not liable to pay any interest. If you pay your tax or penalty late, HMRC start to charge interest based on the date of payment and the interest rate that was in force on the due date. If the interest rate changes during the period that the tax or penalty remains unpaid, the interest calculation will reflect those changes. The current rate of late payment interest can be found on GOV.UK.

Can you appeal against an interest charge?

It is not possible to appeal against an interest charge. HMRC cannot normally reduce or remove an interest charge that is based on the correct amount of tax and the correct start and end dates. This is because the due date and the payment date are facts, and they are not open to interpretation.

Can you object to an interest charge?

But what if the delay in paying the outstanding tax or penalty was somehow HMRC’s fault? In some circumstances, you might be able to object to an interest charge where HMRC error or unreasonable delay is at fault. You must make your objection to your HMRC caseworker or through the appropriate HMRC telephone helpline.

If there is clear evidence of HMRC error or unreasonable delay and this has put you at a financial disadvantage (see below, under the heading Considerations for reduction or removal of interest charges), your caseworker should pass your objection to the Interest Review Unit to look into. You cannot send an objection to the Interest Review Unit directly.

If your caseworker initially refuses to refer your objection to the Interest Review Unit, you can insist on them doing so.

  Normally, you must have paid the tax or penalty that relates to the interest charge in full, otherwise HMRC and the Interest Review Unit are not able to consider your objection.

What is the role of the Interest Review Unit?

The Interest Review Unit is a specialist team in HMRC whose role is to handle objections to interest charged by HMRC. HMRC’s own manual on GOV.UK sets out that the Interest Review Unit will look at the facts of each case it receives in a fair and impartial manner. The unit will review all relevant documents supplied by both you and the HMRC team or officer that you have been dealing with.

The Interest Review Unit is not allowed to consider circumstances that are not common to all taxpayers. So, it cannot take into account your personal circumstances, such as, that you have been unwell. Its remit is strictly limited by the law.

The unit can grant a reduction (rather than a full removal) of an interest charge, if the criteria for an objection are met for only part of the late period.

Considerations for reduction or removal of interest charges

You should be aware that there are very strict conditions governing when the Interest Review Unit may reduce or remove an interest charge. These are set out below. In many cases it is likely to be very difficult to satisfy all the relevant conditions and therefore we understand that the reduction or removal of an interest charge is not very common.

The Interest Review Unit may reduce or remove the interest charge if HMRC error or unreasonable delay has financially disadvantaged you by:

• Creating an interest charge that would not have arisen otherwise, or
• Increasing the amount of an interest charge.

HMRC error

The main considerations for the Interest Review Unit when deciding whether to reduce or remove an interest charge in respect of HMRC error are that all of the following must apply:

• You relied on HMRC’s advice, and as a direct result, did or did not do something, and
• To apply the correct legal position would be so unfair to you that it would be an abuse of power or a gross unfairness, and
• You would be financially worse off than if HMRC had given you the correct advice in the first instance.

It is difficult to give an example of when HMRC might reduce or remove an interest charge. However, HMRC will not normally remove an interest charge where they previously told you, incorrectly, that there would not be an interest charge. The exception might be if you have clear evidence showing that the advice HMRC gave you led you not to pay, to delay payment or to make a reduced payment when you would otherwise have paid in full.

Unreasonable delay

The main considerations for the Interest Review Unit when deciding whether to reduce or remove an interest charge in respect of HMRC unreasonable delay are that all of the following must apply:

• Interest was increasing during the period involved, and
• HMRC were responsible for the conduct of the case during the period, and
• The delay was extensive and unreasonable in the circumstances, and
• It was only this delay that caused the absence of payment, and
• You were not aware that a debt existed, or might arise, that you should have paid or made a payment on account against.

HMRC may apologise to you for delays in dealing with your case. However, this does not mean that they will reduce or remove your interest charge. An apology from HMRC is not an acknowledgement of unreasonable delay.

What are the possible outcomes of an objection to an interest charge?

The Interest Review Unit is likely to make one of the following decisions:

• Where the facts prove the objection, the unit will consider reducing or removing the interest charge. HMRC will advise you of any interest charge that remains due.
• The unit may uphold the interest charge. In this case, the unit will provide a full and reasoned explanation. If new facts arise, the unit may look at them. If there are no new facts, the unit will close the case and HMRC will advise you that the interest charge remains due.

What alternative remedies are there?

You may not be successful in objecting to an interest charge. However, if you are not happy with HMRC’s service or the way HMRC have treated you, you may wish to make a complaint.

We have guidance on your rights and responsibilities, and how to make a complaint to HMRC on our page Complaining to HMRC.