91探花

The late payment interest rate charged by HMRC will be increasing from 2.5% to 4% above the Bank of England base rate. Using today’s rate as an illustration, that would mean a staggering 9% interest rate on late paid tax (although that should soon drop to 8.75% ). 

By way of example, if a taxpayer has a £100,000 tax bill arising as of 31 January 2025, assuming HMRC’s interest rate will drop by 0.25% to reflect the decrease in the Bank of England base rate and that there are no further interest rate changes before April, the taxpayer’s liability will attract interest at a rate of £19.86 for each day it remains unpaid. As of 6 April 2025, this will increase to £23.97 per day. This will clearly increase the amount available to HMRC to collect, but will it increase the actual intake?

It is true that interest rates have been falling, but the pace of further cuts by the Bank of England may slow following the Autumn Budget announcements. It is therefore looking likely that taxpayers struggling to meet tax demands may feel they are penalised heavily by HMRC come April. 

HMRC debt management has many powers to collect debt from a taxpayer, and that can often lead to individuals being declared bankrupt. One way to prevent HMRC from taking such action is by setting up a Time to Pay arrangement, which enables taxpayers to pay what they owe in instalments. According to HMRC’s annual report for 2023 to 2024, 902,054 taxpayers were being supported in that way in March 2024. 

However, one of the features of such an arrangement is that the interest may be payable over the full term of the agreement, irrespective of whether the amount is repaid early. With the new higher HMRC interest rates, it may not be the most commercial option for some taxpayers to agree a Time to Pay arrangement. Some may seek financial advice to see if there are better options and interest rates available, especially if they are able to obtain lending from a bank at a lower rate than HMRC’s. Maybe this was one of the intentions behind the increase, but HMRC should be seeking to support taxpayers; the increase in the interest rate seems to contradict this. Those in the worst financial straits, unable to secure more affordable debt, could be worst hit. 

Another bug bear with the increased interest rates is that the HMRC repayment interest rate is looking unlikely to change by the same amount. There is an increasing number of taxpayers sat waiting endlessly for HMRC to process overpayments of tax, with no means of chasing and HMRC advising that some repayments could take over a year to process. Surely if HMRC is about to get a bigger bite of the cherry, the taxpayer should also be compensated for suffering ongoing delays? 

With HMRC’s debt level still at a high (£44.6bn as at March 2024), there was an obvious need for some form of action to be taken by the new government to encourage taxpayers to pay HMRC promptly, and there is no doubt that increased interest rates will make some taxpayers put their tax debts higher up their priority lists. However, it could be regressive in impacting taxpayers who have no alternative form of funding and increase the pace of a debt spiral that some may struggle to reverse. In order to avoid this, perhaps a solution would be for HMRC to offer a reduced rate of interest to those who enter into Time to Pay arrangements so they are incentivised to do so, which should mean the increased interest rate is more targeted at those who do not work with HMRC to settle their outstanding liabilities.  

The most important thing for any taxpayer who is unlikely to be able to meet a tax bill is to engage with HMRC as soon as possible. 31 January is approaching quickly, so filing tax returns early can mean that conversations start quickly where taxpayers are unable to pay the full debt immediately. This will stop HMRC taking further action to collect debts and could mean that current interest rates are locked in (although this is not guaranteed).