A warning for the 1.1 million taxpayers who missed the 31 January filing deadline: you won’t just face penalties for late payment, but also accumulating late payment interest.
A record amount of late payment interest was paid to HMRC during 2024 to a total of £409 million, more than triple what it was three years ago.
Why the increase?
The interest rate charged by HMRC was 2.6% at the start of 2022 but increased to an average of 7.6% for 2024. The rate has been 7.0% since 25 February 2025:
- With tax allowances and thresholds frozen since 2021 – and with no increases on the cards until 2028 – more taxpayers are either being drawn into the tax net or facing higher rates of tax.
- The reductions to the capital gains tax (CGT) exemption have also contributed.;
If that were not bad enough, things are only going to get worse from 6 April 2025, from when HMRC will be adding a 1.5% surcharge to the late payment interest rate. So, if nothing changes, the current rate will jump to 8.5%.
Preventative measures
With the rate of late payment interest so high, it will almost certainly make sense to use savings to pay off any overdue tax liabilities.
With another tax year ending, get your self-assessment tax return in as early as possible. You will then know what your tax liability is well in advance of the due date and can plan accordingly.
Regular saving into a separate bank account is a good approach. Or set up a budget payment plan with HMRC to make weekly or monthly payments towards your next self-assessment tax bill.
Simply burying your head in the sand over an overdue tax liability will only see the debt spiral. You should engage with HMRC and try to agree a payment arrangement even though this will not prevent interest being charged.
Details about setting up a budget payment plan with HMRC can be found here.
For more information, contact us on 01142 664 432 or email info@smh.group.
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