Budget 2024 – Higher HMRC interest rates on overdue tax

Budget 2024 – Higher HMRC interest rates on overdue tax

As part of measures to clamp down on bad payers, the Chancellor advised that HMRC will have the power to hike up even further the rates of interest they charge.

The current HMRC rate on late payment is 7.5%, which is 2.5% over the bank rate, but under new proposals this will rise to 4% over base rate with effect from 6 April 2025. HMRC charges its own interest rates which are in line with the Bank of England.

The move is designed to force taxpayers to actually pay their overdue tax bills in a timely manner rather than avoiding payment.

The government confirmed in the budget that it will legislate to ‘encourage taxpayers to pay tax on time by increasing the interest rate charged on overdue tax debts’.

HMRC made £346m in interest from taxpayers who paid late or arranged a Time to Pay payment plan in the year to October 2023, more than double the £159m it made the previous year. This is in addition to statutory late payment penalties, late filing penalties and heavy penalties for underpaid tax.

The government is also committed to taking stronger action on tax fraud, by expanding HMRC’s criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies.

The Budget also sets out the first steps of the government’s longer-term ambition to tighten up non-compliance rules and make the tax system easier to deal with, through making better use of data.