Understanding HMRC Interest Charges
Did you know that if you don’t pay your taxes on time, HM Revenue & Customs (HMRC) can charge you interest on your late payment? These interest charges are designed to encourage timely payment and compensate the government for the delay in receiving funds that are legally due.
HMRC uses its statutory powers to charge interest on late tax payments and will also pay interest on overpayments you’ve made. It’s worth noting that these rates have recently changed from April 2025, affecting both late payment charges and refund rates.
How Interest on Late Payments Works
When you miss a tax payment deadline, HMRC will automatically begin charging interest from the original due date until they receive your payment in full. This means that the longer you delay paying your tax bill, the more substantial the additional cost becomes.
Interest accumulates on a daily basis, so even being a few weeks late can result in significant extra charges, particularly for larger tax liabilities.
Current HMRC Interest Rates (2025)
From 6 April 2025, the interest rate on late payments has increased to 8.5% per annum. This increase aligns with current inflation rates and the Bank of England’s interest rate policy.
The formula HMRC uses to calculate interest charges is:
- Late payment interest: Bank of England base rate plus 400 basis points (4%)
- Interest on refunds and overpayments: Bank of England base rate minus 100 basis points (1%), with a minimum of 0.5%
For refunds and overpayments, the rate HMRC pays decreased from 3.75% to 3.50% from 25 February 2025.
Options When You Can’t Pay on Time
Setting Up Time to Pay Arrangements
There may be circumstances where you simply cannot pay your tax liability by the deadline. In these situations, it’s crucial to be proactive rather than simply missing the payment.
HMRC offers ‘Time to Pay’ arrangements for taxpayers experiencing genuine financial difficulties. If you agree to a formal payment plan with HMRC, you’ll still be charged interest, but you’ll avoid additional penalties that come with non-payment.
Consequences of Non-Payment
Simply ignoring your tax obligations without any agreement in place is never advisable. Beyond the interest charges, HMRC may also impose penalties based on a percentage of the unpaid tax, which can substantially increase your overall liability.
In more serious cases of persistent non-payment, HMRC has the power to take enforcement action, including:
- Taking money directly from your bank account
- Seizing assets
- Initiating bankruptcy proceedings
How Professional Accountants Can Help
As your accountants, we can assist with managing your tax payments in several ways:
- Providing early notifications of upcoming tax liabilities and payment deadlines
- Calculating accurate tax projections to help you budget accordingly
- Assessing your cashflow to determine if you’ll have sufficient funds available
- Negotiating with HMRC on your behalf to establish manageable ‘Time to Pay’ arrangements
- Ensuring you’re aware of all payment methods and options available
Even if we’re not currently acting as your tax agents, we can still offer valuable assistance with understanding deadlines, calculating liabilities, and communicating with HMRC.
FAQ: HMRC Interest Rates and Late Payments
When does HMRC start charging interest on late payments?
HMRC begins charging interest from the day after the payment was due until the date they receive full payment. Interest is calculated on a daily basis, so every day counts.
Can I appeal against interest charges from HMRC?
Interest charges are not generally open to appeal as they’re considered compensation to the Exchequer rather than a penalty. However, in exceptional circumstances where HMRC errors have caused delays, you may have grounds for appeal.
Will I be notified before HMRC charges interest?
HMRC doesn’t typically send advance notifications about interest charges. The obligation to pay tax on time rests with the taxpayer, and interest automatically applies to late payments.
Are interest charges tax-deductible for businesses?
Interest charged on late payment of business taxes is not tax-deductible. HMRC considers these charges to be penalties rather than legitimate business expenses.
How can I check how much interest I owe to HMRC?
You can check your HMRC online account for details of interest charges, or contact HMRC directly. As your accountants, we can also help you calculate potential interest charges and verify amounts with HMRC.
What’s the difference between interest and penalties?
Interest compensates HMRC for late payment and applies automatically. Penalties are additional charges imposed for specific failures, such as late filing or negligence, and may be appealable depending on circumstances.
Final Thoughts
When it comes to tax matters and HMRC interest charges, early action is always better than delay. If you’re concerned about meeting tax payment deadlines or already facing interest charges, contact us for professional advice and support.
Remember, we’re here to help you navigate the complexities of the tax system and find the most favourable outcomes for your specific circumstances.
Find out more about HMRC interest rates on the official government website
Learn about Time to Pay arrangements on the HMRC website
Visit the Institute of Chartered Accountants in England and Wales (ICAEW) for more tax guidance
Explore Companies House guidance on filing deadlines and penalties
Check the Association of Taxation Technicians (ATT) resources on tax payment deadlines
