The taxman should pay the same rates of interest on refunds as it expects to charge on late payments, a Tory MP has told the Commons.
Mike Freer, MP for Finchley and Golders Green, proposed a new law to force HM Revenue and Customs to equalise the way it calculates interest. He said HMRC did important work but it was important it was fair to the public, adding that it hit the poorest hardest when refunds were delayed.
Mr Freer said: "HMRC do pay interest but the late payment rate is six times the unpaid refund rate. Currently, with record low interest rates the late payment rate is 3%. But the unpaid refund rate is 0.5%.
"There are a wide range of penalties applying to virtually every tax.
"The key issue is the disparity between the penalties levied by the HMRC and interest rates and lack of penalties levied on them. This is particularly relevant where the taxpayer has followed the rules and yet refunds have taken months to be paid.
"In my experience of dealing with the public sector, if you grab them by the budgets, their minds will follow. If the Revenue had to pay real rates of interest and penalties, they will streamline their processes and pay refunds promptly.
"It is an issue of fairness that is paramount in this Bill. Taxpayers should be entitled to the same rate of interest on refunds that the Revenue expects to levy on late payments. In this place, we often comment that we govern only with the consent of the people. I believe we have allowed the relationship between the Revenue and the taxpayer to deteriorate to that of master and slave.
"It is time to rebalance that relationship."
Mr Freer introduced his Tax Refunds Regulation (Review) Bill under the 10-minute rule. The Bill was scheduled to receive its second reading on March 30.
© 2011 Press Association