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HMRC interest rates rise to 6.5% on overdue tax payments

HMRC have increased the interest rate charged on overdue tax to the highest level since 2008

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 9 March 2023

3 min read

HMRC interest rates rise to 6.5% on overdue tax payments

In an announcement in January 2023 by His Majesty’s Revenue and Customs, the interest rate charged on overdue tax payments was increased by 0.5% to 6.5%. This makes the interest rate charged by the HMRC on overdue tax the highest rate since 2008.

The current figure for unpaid tax debt in the UK is mind-blowing as it sits at around £42bn in total, which could contribute significantly to the faltering British economy. An increase in the interest rate charge is to act as a deterrent to future late payments and to encourage those with outstanding debts to make repayments.

SUMMARY: the HMRC has recently come under pressure by the government to improve the current state of the tax debt owing in the UK. The ‘black hole’ of tax debt has been identified as a potential source for funds to help repair the British economy.

Learn more about our predictions for interest rates this year in our ‘MPO Interest Rate Forecast’.

How is overdue tax calculated?

Late payment of tax (e.g. income tax) to the HMRC will attract interest which is to incentivise people to repay their tax early, and to be fair to early payers. The interest charge will be added to any outstanding debt from the 1st day from where the payment was due.

Interest is calculated at 2.5% above the Bank of England (BoE) Base Rate (currently 4%) which equates to a total charge of 6.5%. This also means that the interest charge rate is variable and can go up as well as down, but is much higher than it has been in recent years.

There is also an online tool that is provided by the HMRC (Estimate your penalty for late Self Assessment tax returns and payments) to provide you with a figure for any outstanding debt. This tool is able to provide an estimate of the interest charges for any late payments due for the past seven years up to 20/21 tax years.

Are there any other charges or penalties for overdue tax payments?

Unfortunately, there are also other charges and penalties that will and do apply to late tax payments. The HMRC also charges a late payment fee of £100 which is a penalty charge that is levied for any late submissions for paying a self-assessment tax return. This is a change to the previous rule where the HMRC would allow an extension of one month before penalising individuals.

You may also be liable for penalties and charges on any other tax payments, such as VAT or Corporation Tax. In recent years, the HMRC has provided people with an opportunity to enter in to a repayment plan or late payment agreement to avoid these charges. However, if you fail to keep up with repayments on these plans then interest will continue to accrue.

Can I do anything if I can’t afford to pay my tax bill?

The HMRC provides a service that can be applied for by individuals that are unable to pay their tax on time and in full. If you enter in to an agreement to repay your tax over a period of several months then this may avoid late payment penalties, however, interest will still be accrued until the debt has been repaid.

You can apply to set up a payment plan for late payments by visiting the website and applying online. These plans are subject to approval by the HMRC and may be refused if they are abused or for individuals with a history of late payment.

Terms and conditions for HMRC late payment plans

Self-assessment tax payments

  • Must be under 60 days from due date for payments
  • Must be paid in full within 12 months
  • Maximum amount of tax owed must be less than £30,000
  • No other payment plans or debts with the HMRC

PAYE contributions for employers

  • Must be less than 35 days since last tax payment
  • Must be paid in full within 6 months
  • Maximum amount owed must be less than £15,000
  • No other payment plans or debts with the HMRC
  • All PAYE and CIS (Construction Industry Scheme) submissions must be up to date

The other key point to note is that the HMRC will be less likely to offer payment plans for any business that has savings, investments or assets that could be sold to settle any outstanding tax debts.

Also, the HMRC will check to see whether individuals have sufficient personal funds or if they are able to raise funds by applying for credit.

You can contact the HMRC yourself to discuss payment plans and late payment charges by calling 0300 200 3300 or visit Alternatively, if you need assistance then you should speak to a qualified tax expert for guidance.

Resources – How to pay a debt to HMRC with a Time to pay arrangement – If you cannot pay your tax bill on time

NI Direct – Tax and other debts owed to HM Revenue and Customs

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