HMRC are changing the way they calculate interest on overdue tax and this means it's worth considering carefully how you finance any overdue and future tax payments.
The deadline for paying the tax due for self-assessment income tax returns is 31 January. Any tax unpaid by then will start to incur interest and there will also be late payment fees of 5% of unpaid tax at 30 days, 6 months and 12 months late.
As announced in last year's Autumn Budget, the late payment interest rate charged by HMRC will be increasing significantly from an extra 2.5% to an extra 4% above the Bank of England base rate.
This means that from 6 April 2025, a hefty 8.75% interest rate will be applied to overdue tax - further exacerbating debt problems for those already struggling to pay. This is regardless of the tax year to which the unpaid tax relates. (This assumes no change to the Bank of England base rate before then).
Example: a £100k unpaid tax bill from 31 Jan 2025 would accrue interest at a rate of £23.97 per day from 6 April (up from the previous amount of £19.86 per day).
The purpose of the increase is, of course, to encourage prompt payment of tax liabilities, with a view to ensuring fairness for taxpayers who pay their tax on time.
Late payment interest is charged on unpaid taxes, including income tax, capital gains tax and some National Insurance contributions that are not paid by the relevant deadline.
Additionally, interest is also charged on overdue payments on account, which are advance tax payments due by some taxpayers, payable twice a year in January and July.
Clearly, the new interest rate is significantly higher than we have been used to over the past decade and it has the potential to be extremely costly if payment deadlines are missed.
The deadline for filing 2023-24 self-assessment tax returns is 31 Jan 2025.
How to Pay
You can pay your bill via the HMRC website, or via the HMRC app on your phone
What support is available if you're unable to meet the 31 Jan deadline?
Missing the deadline could be costly, so it’s well worth considering financing options - wherever possible - that will enable you to pay your taxes on time.
HMRC’s "Time to Pay" arrangements include the cost of the interest, so make sure you consider other reputable financing options which might be lower cost before signing up to one of their plans.
If you’re feeling worried, it’s better to tackle the issue sooner rather than later. Taking action now can help stop your financial situation from getting worse and lower the risk of insolvency.
Please don't hesitate to contact us if you need any help with your tax obligations - we're here to assist!
