Tax Planning
Late Payments and Interest Rates: Strategies for Self-Employed and Landlords in the UK
HMRC has raised late payment interest rates and introduced steeper penalties as taxpayers join Making Tax Digital — here’s how self-employed individuals and landlords can stay ahead of the curve.
By NomadicTax Research Team • 5-8 min read • March 24, 2026
## 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](https://www.gov.uk/government/news/hmrc-late-payments-interest-rates-to-increase-from-6-april-2025?utm_source=openai))
- 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](https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates?utm_source=openai))
- 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](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
## 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
1. **Review tax deadlines now** — Put them in your calendar, set up reminders.
2. **Budget for payments** — Even when income is seasonal, prioritise setting aside cash for tax liabilities.
3. **Use HMRC’s digital tools** — Software that helps with MTD compliance will flag upcoming deadlines and late payment warnings.
4. **Negotiate time to pay** — HMRC’s “Time to Pay” service may help if you expect cash flow issues. Do this before defaulting.
5. **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.