HMRC expected to raise £255M in late payment interest
HMRC expected to raise £255M in late payment interest
HMRC recently cut the late payment interest rate to 8.25% following the Bank of England’s 0.25% base rate cut in May but it is still historically as high as it was in 2007 at the time of the financial crash.
With effect from 6 April 2025, HMRC started charging an even higher premium on its repayment interest rates, increasing the current 2.5% rate surcharge to 4% over base rate.
The Treasury announced the change at last October’s Budget, saying it made the decision as part of 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.
Late payment interest paid by taxpayers running behind on tax bills has continued to grow between 2018 and 2023. Research showed via a freedom of information request by NFU Mutual that in those five years £834m was collected in late payment interest, with £513m alone collected between 2020-23 despite a large drop during the covid pandemic.
In 2018-19 HMRC collected £166m in late payment interest, which decreased to £155m in 2019-20.
A chartered financial planner at NFU Mutual was quoted saying: ‘The change in April saw the interest on late tax payments rise to 8.5% to its highest level since August 2007 – even with the recent reduction in the base rate, an interest rate of 8.25% is a heavy charge on taxpayers who pay late.’
As soon as a payment date is missed the interest begins to rack up, and penalties are often applied accruing interest the longer they are outstanding. After 30 days HMRC starts to charge a penalty of 5% of the amount of tax owed.
After six months a further 5% penalty is added, and then again after 12 months, showing how quickly interest can grow if tax bills are ignored.
You should also note though, that those struggling to pay a tax bill can contact HMRC who will in many cases allow you to set up a payment plan to pay by instalments provided you owe £30,000 or less, have filed your latest tax return and are within 60 days of the payment deadline.