HMRC late payment penalties and interest have got tougher

Paying or filing late has become more expensive. HMRC has both raised the interest it charges on overdue tax and brought in tougher, points based penalties for late returns, with steeper charges for late payment. The message from HMRC is clear, which is that being late now costs real money, so it pays more than ever to file and pay on time.

What has changed

There are two strands. On interest, HMRC raised its late payment interest rate to the Bank of England base rate plus 4 per cent, up from base rate plus 2.5 per cent, so overdue tax now builds up interest noticeably faster. On penalties, a points based system now applies to late returns under Making Tax Digital and VAT, where you collect a point for each late submission and receive a fixed penalty once you reach the threshold for how often you file. Late payment itself is penalised separately, with a charge of around 3 per cent of the tax still unpaid after 15 days, a further amount after 30 days, and then daily interest until it is cleared.

Who it affects

This affects everyone who has tax to pay or returns to file, but it bites hardest on businesses and individuals who run close to deadlines or who hit a difficult patch with cash flow. The points based system is designed so that an occasional slip does not trigger a penalty straight away, but repeated lateness builds up and then costs you, and the higher interest applies to everyone from the moment a payment is overdue.

What you can do

The simplest protection is to file early and pay on time, and to set money aside for tax as you go so the payment is never a problem. If you genuinely cannot pay, the worst thing to do is ignore it. HMRC has a Time to Pay arrangement that lets you spread a tax bill over instalments, and agreeing one before the deadline usually avoids the worst of the penalties, though interest still runs. Keeping your filing up to date also avoids the points adding up. If a penalty has been charged and you had a genuine reasonable excuse, it can sometimes be appealed.

Our view

Our honest view is that HMRC has lost patience with lateness, and the gentle treatment of the past is gone. The interest rate in particular means that owing tax is now an expensive way to borrow money, far more than most people realise. The good news is that all of this is avoidable with a little organisation. We would much rather help a client set aside the right amount through the year and file early than deal with penalties and interest afterwards. And if cash is tight, talking to HMRC early through Time to Pay is far better than going quiet.

How we can help

We keep your returns filed on time, tell you what to set aside and when, arrange Time to Pay if cash flow is tight, and appeal penalties where there is a genuine reasonable excuse. Book a free call back and we will keep you penalty free.

Common questions

How much interest does HMRC charge on late tax?

HMRC charges late payment interest at the Bank of England base rate plus 4 per cent, having raised it from base rate plus 2.5 per cent, so overdue tax builds up interest quite quickly.

What if I cannot pay my tax bill on time?

Do not ignore it. HMRC offers Time to Pay arrangements that let you spread the bill over instalments, and agreeing one before the deadline usually avoids the worst penalties, although interest still applies.