The cost of paying tax late has increased — significantly. Since 6 April 2025, HMRC’s late payment interest rate has risen sharply, making prompt payment more important than ever.
Higher Interest Charges
HMRC charges interest on overdue tax from the due date until the payment is made. For most taxes, the rate has increased from the Bank of England (BoE) base rate plus 2.5% to BoE base rate plus 4%, effective 6 April 2025.
For quarterly instalments of Corporation Tax, the rate has also jumped — from BoE plus 1% to BoE plus 2.5%.
As of 28 May 2025, the interest rate on late payments for Income Tax, Capital Gains Tax, and National Insurance contributions is 8.25%.
Since the Bank of England reviews its rate every six weeks, any future changes will directly affect HMRC’s late payment rates. The next decisions are due on 7 August and 18 September 2025.
Penalties on Top of Interest
Interest isn’t the only cost. HMRC also applies penalties for late payment. Under Income Tax Self Assessment, you may face:
- 5% of unpaid tax after 30 days
- Another 5% after 6 months
- A further 5% after 12 months
Penalties differ for VAT and Making Tax Digital (MTD) for Income Tax, and these were also increased in the Spring Statement 2025.
Tip: Use Time to Pay if Needed
If you’re struggling to meet a tax deadline, HMRC’s Time to Pay (TTP) arrangement may help. If you set it up before the first penalty date, you may avoid late payment penalties — though interest will still accrue.
TTP allows you to pay your tax in instalments tailored to your financial situation. Early action is key.
The Bottom Line
Rising interest rates and tougher penalties mean late tax payment is no longer a minor issue or an easy source of short-term borrowing. HMRC is using these tools to close the tax gap and encourage prompt compliance.
Paying tax on time isn’t just about meeting your legal obligations — it’s also a sound business decision.
