HMRC is hiking the official rate of interest for late payments on taxes, which will affect millions of taxpayers across the UK. The tax office announced that from April 6, interest rates for late payments will be increased by 1.5% for all taxes.
This includes Income Tax, National Insurance contributions, Capital Gains Tax, Stamp Duty Land Tax (SDLT), and VAT. The late payment rate currently sits at 7% and has been at this level since February 25, 2025. However, from April 6, it will rise to 8.5%, the highest level it has been over the last 25 years.
The Autumn Budget announced that HMRC would increase its late payment interest rate to “encourage prompt payment” of owed taxes, adding: “It ensures fairness for those who pay their tax on time.”
HMRC interest rates are set in legislation and are linked to the Bank of England base rate, so would rise and fall alongside it. The late payment interest rate was previously set at the Bank’s base rate plus 2.5%. However, the change will now see it set as the Bank’s base rate – which is currently 4.5% – plus 4%.
Most UK taxpayers have their taxes deducted automatically from their wages, pensions or savings, and won’t need to file a tax return. However, the changes are expected to impact the over 11.5million Brits who have to file self-assessment tax returns each year.
Late payment interest rates are combined with late penalties. Self-assessment taxpayers who fail to submit their self-assessment tax return on time face an initial late filing penalty of £100. This applies even if there is no tax to pay or if the tax due is paid on time. After three months, additional daily penalties of £10 per day are added, up to a maximum of £900.
After six months, a further penalty of 5% of the tax due or £300 is then added – whichever is greater. After 12 months, another 5% or £300 charge is added. There are also additional penalties for paying late of 5% of the tax unpaid at 30 days, six months and 12 months. If the tax remains unpaid after the deadline, from April interest of 8.5% is also be charged on the amount owed, in addition to the penalties.
HMRC also has a repayment interest rate, which is set at the Bank of England’s base rate minus 1% with a lower limit – or “minimum floor” – of 0.5%. This is paid on tax refunds. Currently it sits at 3.5% and will not be changing next week. However, it has garnered a tonne of criticism over the last few years as interest rates rose significantly.
Andy Wood, a tax expert from Tax Natives, says that there is a “fundamental imbalance” between the two rates.
Defending the level, an HMRC spokesperson previously said: “The difference between rates is in line with the policy of other tax authorities worldwide. It compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.”
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You normally need to file a self-assessment tax return if you’re self-employed and your income hasn’t had tax automatically deducted, or if you’ve earned extra cash outside of your normal employment that has not been taxed.
You can also check online through the HMRC website to see if you need to send a tax return.
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