Taxpayers who pay their taxes via self-assessment will pay more interest as HMRC clamps down on late payments.
The interest charged on unpaid tax will rise by 1.5 percentage points.
Currently, any late tax interest is charged using the Bank Rate plus 2.5 percentage points.
From 6 April 2025 this will increase to the Bank Rate plus 2.5 percentage points, the increase will take affect to 6 April 2025.
Accountancy giant Price Bailey told IFA Magazine that HMRC‘s interest on money it owes to taxpayers will remain unchanged at the Bank Rate minus one percentage point, with a lower limit of half a percentage point.
In the year ending October 2023, HRMC made £346 million in interest from taxpayers who had paid their tax late, double £159 million the previous year.
Price Bailey said that if the amount owed by taxpayers remained unchanged, HMRC would collect over half a billion pounds in late interest payments by the 2025/26 tax year.
Andrew Park, Tax Investigations Partner at Price Bailey, said: “This is a worrying shift from charging enough to deny taxpayers an advantage in paying late to creating another punishment by the backdoor.
“It’s a blatant cash grab by the taxman and one which comes without any safeguards.”
“Existing penalties come with legal protections and can be appealed or mitigated; late payment interest cannot. HMRC has long claimed that the interest rates on tax owed and overpaid are fair, but this is now manifestly untrue.”
The hike in interest on late tax comes as HMRC faces calls to overhaul its customer support service. MPs slammed HMRC for leaving 44,000 callers on hold for 70 minutes when calling its helpline, only to be disconnected.
The Public Accounts Committee said HMRC needed to do more to chase older debts and use more of the powers at its disposal; MPs noted that HMRC often went for ‘low hanging fruit’ – small businesses facing cashflow problems – when trying to chase unpaid tax.
HMRC is also reportedly set to recruit 5,000 more tax inspectors to chase £6.5 billion in unpaid or late tax from small businesses and ‘normal income earners’.
The clampdown was revealed in the HMRC Customer Service & Accounts report published last week.
