The Chartered Institute of Taxation (CIOT) is urging HMRC to review its "unfair" repayment interest rates.

According to the CIOT, customers with outstanding tax liabilities are facing late payment penalties up to 17 times higher than the amount returned to those who have overpaid their taxes.

As a rule, HMRC charges taxpayers interest on late payments by adding 2.5% to the Bank of England's (BoE) base rate. Meanwhile, the interest rate on repayments is the base rate minus 1%.

That means there is usually a difference of 3.5 percentage points between the two interest rates.

Following the BoE's most recent base rate hike, the interest rate for late payments is now 6.5%, while the repayment interest rate is 3%.

According to HMRC, these rates encourage "prompt payment" and "compensate taxpayers fairly". However, the CIOT says that the Government should consult on whether the current interest rates are suitable.

Richard Wild, head of tax technical at the CIOT, said:

"Unless something is done to bridge the gap between repayment interest and late payment interest, the Government will struggle to achieve its objectives of building a trusted, modern tax administration system that is seen as fair and even-handed."

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