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Knowledge bank

How to avoid paying interest on your taxes

By September 2, 2021No Comments2 min read

Back to basics for a moment. There are 2 types of interest: recovery interest and tax interest. Interest rates are (or have been) temporarily low, but will rise again in the near future. The interest on some taxes can be as high as 8%! It is therefore important to avoid paying (a lot of) tax interest unnecessarily.

An explanation of the difference between collection interest and tax interest

Recovery interest is the interest you pay if you do not pay the tax on time.
Tax interest is the interest you pay if you file your return after June 30 following the tax year because you have applied for a postponement, or if you have filed a return for an incorrect amount, which is, for example, based on an estimate.

 

Recovery interest

Collection interest has been temporarily reduced to 0.01%. Due to the corona crisis, the tax authorities have temporarily lowered the recovery interest to 0.01%. Normally this is 4%!

From March 23, 2020 to December 31, 2021 this is 0.01%
From January 1, 2022, this will be 1%
This will gradually increase to 4% on January 1, 2024

 

Tax interest

Due to the corona crisis, the tax rate was also temporarily lowered. But since October 1, 2020, this has been reset to 4% for all taxes.

From January 1, 2022, the tax rate for corporate income tax will return to the old rate of 8% (!)
For all other taxes, the rate remains 4%

 

When do you pay tax interest?

In the case of income tax and corporation tax, you pay interest if the date on the tax assessment (the assessment you receive after you have submitted the return) is after 30 June of the following year. If the date on the assessment for 2020 is 1 July 2021 or later, you will pay interest from 1 July to 6 weeks after the date on the assessment.

With the VAT/turnover tax you pay tax interest if you still have to pay VAT for the previous year after 1 April. So if you still have to pay VAT for 2020, you will pay interest on 1 April 2021 up to 14 days after the date on the assessment.

 

Avoid tax interest with a provisional assessment

Do you have to pay income tax or corporate tax for 2020? Then quickly request a provisional assessment. In that case, the tax authorities cannot charge interest on the amount that you pay in the provisional assessment. You do not pay interest if you applied for a provisional assessment before 1 May 2021. Not yet done? Then do this as soon as possible. We are happy to help you with this.