Starting 6 April 2025, HMRC will increase the interest it charges on unpaid tax to 8.5%, up from the current rate of 7%. This change could hit many taxpayers in the pocket—especially those who owe money or are late in paying their tax bills.
Currently, late payment interest is calculated at the Bank of England base rate (4.5%) plus 2.5%, but from April, that additional charge will rise to 4%, meaning a total late payment rate of 8.5%.
Why the Increase?
According to a Freedom of Information request by AJ Bell, the government has been pulling in over £150 million in late payment interest just from the 2022/23 tax year alone. That’s a 14% jump in average payments compared to the previous year.
The rise has been partly driven by frozen tax thresholds and rising wages, which have pushed more people into higher tax bands—many of whom are now required to file self-assessment tax returns for the first time.
A Double Standard?
Charlene Young, senior pensions and savings expert at AJ Bell, has pointed out what many feel is an unfair system:
“Late payment interest starts immediately if you owe HMRC. But if they owe you, you’ll only get repayment interest if they’re more than a year late,” she explains. And even then, HMRC only pays 3.5% interest on refunds, based on base rate minus 1%—far below what they charge for late payments.
What If You’ve Missed a Payment?
HMRC does allow people to appeal for a refund on penalties and charges, but only in certain situations. Simply not knowing the rules or forgetting won’t be enough. Acceptable reasons usually include things like serious illness, bereavement, or unexpected emergencies that prevented you from filing or paying on time.
An HMRC spokesperson responded to concerns, saying:
The interest we charge, and pay is fair. It ensures those paying late don’t gain an unfair advantage over those who pay on time. It also discourages people from overpaying tax just to earn higher interest.
If you’re struggling to pay your tax on time, HMRC urges people to get in touch as early as possible. Options such as a Time to Pay arrangement can help spread out payments and reduce financial pressure.
Need help navigating HMRC’s latest interest rate changes?
At The Accounting People, we help individuals and businesses stay ahead of tax deadlines and avoid costly penalties. Whether you need help setting up a Time to Pay arrangement or want to ensure your filings are accurate and on time, we’re here to support you.
👉 Get in touch today for expert tax advice and personalised support.
📞 Book a consultation