What Has Changed?
From 6 April 2025, HMRC has:
- Increased late payment interest rates by 1.5 percentage points — most taxes now charged at Bank of England base rate plus 4%. (gov.uk)
- Raised repayment interest rates and updated both late and repayment rates most recently on 9 January 2026, with late payment interest at 7.75% and repayment interest at 2.75%. (gov.uk)
- Introduced higher late-payment penalties for VAT and income tax Self Assessment taxpayers as they join Making Tax Digital (MTD): 3% for overdue amounts by 15 days, another 3% for 30 days overdue, and 10% per annum from day 31. (gov.uk)
Who Is Affected?
- Self-employed individuals and landlords registering for MTD who miss payment deadlines.
- Businesses with VAT obligations that do not pay on time.
- Anyone with overdue tax liabilities — penalties and interest may accumulate quickly.
Actionable Advice to Avoid Costly Charges
- Review tax deadlines now — Put them in your calendar, set up reminders.
- Budget for payments — Even when income is seasonal, prioritise setting aside cash for tax liabilities.
- Use HMRC’s digital tools — Software that helps with MTD compliance will flag upcoming deadlines and late payment warnings.
- Negotiate time to pay — HMRC’s “Time to Pay” service may help if you expect cash flow issues. Do this before defaulting.
- Keep accurate records — Good documentation can prevent misunderstandings and disputes with HMRC.
Example Based on Real Figures
Suppose you, a self-employed consultant, have an income tax self assessment payment due on 1 May, and you fail to pay until 1 June:
- 15 days overdue → incurs a 3% penalty of outstanding tax.
- 30 days overdue → additional 3%.
- From day 31 onward → daily interest at ~10% per annum on the outstanding amount, plus ongoing late payment interest (BoE base plus ~4%).
Over weeks, what seems a small delay can become very costly.
Mitigating Risks for Long-Term Strategy
- Plan for quarterly or monthly payments if possible, instead of letting liabilities accumulate.
- Incorporate tax liabilities into pricing strategy (for consultants, freelancers, landlords).
- Consult with a tax adviser early when you anticipate payment delays; it’s cheaper than interest and penalties.
Wrapping Up
These changes reflect HMRC’s push to reduce the UK tax gap by making sure late payments are more costly. If you’re on track with payments, you’ll see no impact. But let missed deadlines creep in — and you could face steep extra charges. Being proactive now can save money, stress, and compliance issues later.