HMRC receives over £400m in late payment interest
HMRC receives over £400m in late payment interest
A recent freedom of information request has found that the amount of money paid out in late payment interest to HMRC hit £409.4m in 2024, more than tripling in just three years.
Back in 2021 £131.9m was paid in late interest by taxpayers who failed to pay their tax bill on time. In 2024 this has grown considerably to £409.4m partly due to the HMRC interest rate increasing to a peak of 7.75% in August 2024.
Considering that HMRC’s interest rate was 2.6% in 2021, and the Bank of England base rate was at a historic low of 0.1% as a result of covid lockdowns. HMRC’s average interest rate in 2023 was 7.08%, increasing to 7.63% on average through 2024.
It therefore seems that late payment interest has become an increasingly important source of revenue for HMRC. Whilst it’s important that there is a sensible disincentive to ensure tax is paid on time, it is important that those taxpayers who are struggling financially are not sent into a debt spiral by HMRC’s interest rates.
The number of filed tax returns was down by 700,000 in January 2025 for tax year 2023-24 compared with the previous year, but figures show that self-assessment taxpayers owed more tax due to thresholds being frozen until 2028.
The interest rate set by HMRC is currently 2.5% above the Bank of England’s base rate, which was recently reduced to 4.5% with no guarantee this is going to fall further this year. The next BoE meeting is scheduled for the end of March.
The Treasury announced the move at last October’s Budget, saying it made the decision to help with the wider clampdown on tax avoidance and non-payment of taxes. This is expected to raise £255m a year from 2025-26, as taxpayers are penalised for late and non-payment.
HMRC stressed: ‘Late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time. But taxpayers should not ignore any late payment charges’.
If you are worried about your situation, you should engage with HMRC rather than ignore the problem and try to agree a payment arrangement.