HM Revenue & Customs (HMRC) will rake in an additional £200 million per year by hiking interest payments on late tax, according to Price Bailey, the Top 30 firm of accountants.
Announced in the Autumn Budget, the amount of interest charged on unpaid tax liabilities will increase by 1.5 percentage points to Bank Rate plus 4 percentage points. Late payment interest is currently charged at the Bank Rate plus 2.5 percentage points. This measure will be effective from 6 April 2025.
Price Bailey points out that the interest HMRC pays on money which it owes to taxpayers will remain unchanged at the Bank Rate minus one percentage point, with a lower limit of half a percentage point. If the Bank Rate remains unchanged between now and when the change takes effect the late payment interest rate would be 9 percentage points compared to a repayment interest rate of 4 percentage points.
HMRC made £346m in interest from taxpayers who paid late or arranged a “Time to Pay” payment plan in the year to October 2023 – a record amount and more than double the £159m it made the year prior.
Price Bailey says that, assuming interest rates and the amounts owed by taxpayers remain unchanged, HMRC will rake in over half a billion pounds in late interest payments by 2025/26 tax year.
Andrew Park, Tax Investigations Partner at Price Bailey, comments: “The interest rates being charged on late tax are now a form of double punishment. Taxpayers are already charged statutory late payment penalties, late filing penalties and heavy penalties for underpaid tax. This is a worrying shift from charging enough to deny taxpayers an advantage in paying late to creating another punishment by the backdoor. It’s a blatant cash grab by the taxman and one which comes without any safeguards. Existing penalties come with legal protections and can be appealed or mitigated, late payment interest cannot. HMRC has long claimed that the interest rates on tax owed and overpaid are fair, but this is now manifestly untrue.”
“Most individuals and businesses pay tax late because they are experiencing financial distress and are simply unable to pay. It’s not a question of them needing an incentive to pay tax on time. If punitive interest rates discourage late payment, one would expect the amount HMRC rakes in from late payments to fall but instead they are forecasting a windfall.”
He adds: “If businesses or individuals go bust, tax debts can be written off entirely. HMRC is walking a fine line between, on the one hand allowing distressed taxpayers extra time to pay, and on the other squeezing more money out of those already experiencing financial difficulties.”
Price Bailey says that the hike in interest charged for late payment of tax comes at a time when HMRC has been criticised for persistent delays with its tax helplines, which led to taxpayers paying tax late. It was widely reported that the day before the tax return deadline (30th January 2024), callers to HMRC’s self-assessment helpline were frequently waiting longer than 40 minutes before speaking to an adviser.
Additional amount collected in interest on late tax from April 2025
Record number of late filing/payment penalties cancelled in 2023/24 due to delays at HMRC
The number of penalties issued by HMRC for late payment of tax or late filing of tax returns cancelled on appeal jumped by 70 percent in 2023/24.
35,876 penalties were cancelled on appeal in 2023/24, compared to 2022/23 when 21,071 were overturned. Missing the self-assessment deadline leads to an automatic £100 late filing penalty, with additional penalties for paying outstanding taxes after the deadline. However, increasing numbers of taxpayers were found to have a reasonable excuse.
Andrew Park says: “It is important that the tax system is seen as fair and even-handed. Moreover, it is a requirement of the HMRC Charter. The widening gap between late payment and repayment interest undermines the principle of fairness. When late filing and payment of tax is due to HMRC’s own bureaucratic shortcomings, taxpayers feel doubly aggrieved.”
