Late Payment Interest: What You Need to Know

The Government announced in the Budget that late payment interest charges will increase from 6th April 2025. Currently, HMRC applies an interest charge of 2.5% above the base rate on outstanding tax liabilities. This will rise by 1.5%, bringing the new rate to 8.75%, up from 7.25%.

With late payment interest increasing, taxpayers should ensure they meet their deadlines to avoid unnecessary costs.

The Impact of Late Payment Interest

Late payment interest can accumulate quickly, resulting in significant additional costs. A common reason for late tax payments is that taxpayers are unaware of their liability, often because they leave their tax return until the last minute.

If you are unsure how much tax you will need to pay in January, it is best to complete your tax return early. This gives you time to plan and arrange payments, avoiding unexpected financial strain.

Reducing Payments on Account – Proceed with Caution

Some taxpayers choose to reduce their payments on account to lower their immediate outgoings. However, if these payments are reduced too much, late payment interest charges will apply. Careful planning is essential to avoid unexpected interest costs.

Executors and Inheritance Tax

Executors handling estates should also be mindful of late payment interest. Those paying inheritance tax via instalments can be exposed to additional charges. Where possible, clearing tax liabilities quickly can help minimise costs. Instalment payments should only be used when absolutely necessary.

Should You Consider a Loan to Cover Tax Payments?

In some cases, taking out a short-term loan to cover a tax payment may be worth considering. If the interest rate on the loan is significantly lower than HMRC’s late payment interest, this could be a more cost-effective option.

How We Can Help

With tax rates already high, avoiding unnecessary interest charges is crucial. Our expert tax team can help you manage your tax liabilities efficiently, ensuring you meet deadlines and minimise costs.

If you have any questions or need assistance with your tax payments, speak to a member of our tax team today.