In the October 2024 Budget, the UK government announced an increase in HMRC’s late payment interest rates, which will take effect from 6 April 2025. This change means that any overdue tax payments will now accrue interest at a higher rate, making it more crucial than ever to stay on top of tax obligations.
What’s Changing?
From April 2025, HMRC’s late payment interest rate will rise by 1.5 percentage points, bringing the total rate to the Bank of England base rate plus 4%. With the current base rate hovering around 5%, this means businesses and individuals could face an approximate 9% interest rate on any unpaid tax.
Why Is HMRC Increasing Interest Rates?
This move is part of the government’s strategy to improve tax compliance and encourage timely payments. The aim is to reduce the tax gap—the difference between the tax owed and the tax collected—and strengthen public finances. Higher interest rates on late payments act as a deterrent, ensuring that businesses and individuals prioritise tax deadlines.
How Could This Affect You?
- Higher Costs for Late Payments: If you miss a payment deadline, the increased interest rate means you’ll be paying significantly more in penalties.
- Stricter Compliance Needed: Businesses and individuals need to ensure their tax affairs are in order well ahead of deadlines to avoid unnecessary costs.
- Increased Cash Flow Pressure: For small businesses and self-employed individuals, higher interest on overdue tax could put additional strain on cash flow.
How to Avoid Late Payment Charges
To prevent unnecessary interest and penalties, consider the following steps:
- Submit Tax Returns on Time: Ensure that all tax returns, including self-assessments, VAT, and corporate tax filings, are submitted well before the deadlines.
- Plan for Tax Liabilities: Work with an accountant to estimate your tax liabilities in advance and set aside funds accordingly.
- Use Payment Plans Where Necessary: If you are unable to pay in full, contact HMRC to discuss a possible payment plan before the deadline.
- Keep Accurate Records: Maintain proper bookkeeping and ensure that financial records are up to date to avoid errors or delays in tax calculations.
How MNA Accountants Can Help
With the new late payment interest rate increase, it is more important than ever to ensure that your tax affairs are handled efficiently. At MNA Accountants, we provide expert tax planning and compliance services to help you:
- Prepare and submit tax returns accurately and on time
- Identify potential tax liabilities and mitigate risks
- Manage cash flow and budgeting for tax obligations
- Liaise with HMRC on your behalf if needed
By working with our team, you can avoid unnecessary penalties and stay compliant with the latest tax regulations.
Act Now – Don’t Leave It Too Late
The best way to avoid these additional costs is to act early. If you haven’t already, now is the time to review your tax position and ensure everything is up to date before the 6 April 2025 changes come into effect.
If you need assistance with tax planning, returns, or compliance, contact MNA Accountants today. We’re here to help you stay ahead and avoid costly interest charges.