While everyone looks forward to receiving a tax refund at the end of a year (which admittedly is very pleasant), and dreads being told they actually owe money to HMRC, financially speaking, the latter is actually preferable.

By being due a refund, you are actually foregoing the interest you would have earned on the amount you should have received originally. For example, if HMRC owed you £1,000, the interest rate was 5% and you only received your refund after a year, you would have lost out on £50 worth of interest that year. HMRC would have earned that interest instead, but they won’t be paying it over to you.

On the other side of the coin, if you have not paid enough tax and end up owing Revenue money, effectively they will now have given you an interest free loan instead. Using the same figures as above, you would have earned £50 interest with their money, which you in turn do not have to pay back.

Its still not great having to pay anything back to the Government but thinking about it in this way will hopefully take the edge off a little.

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