09 February 2024
A freedom of information (FOI) request by RSM UK has revealed the true amount of late payment interest paid to HMRC by individuals and trustees in respect of their unsettled tax liabilities.
Late payment interest is charged on unpaid taxes, including income tax, capital gains tax and some National Insurance contributions (NICs) that are not paid by the relevant deadline. The main payment deadline for individuals and trustees is 31 January each year, when the balancing payment in respect of the previous tax year falls due. Additionally, interest is also charged on overdue payments on account, which are advance tax payments due by some taxpayers, payable twice a year in January and July.
For most late payments, HMRC charges late payment interest at an annual rate equal to the Bank of England base rate plus 2.5%. Following successive hikes to the Bank of England base rate since early summer 2022, HMRC’s late payment interest rate now stands at 7.75%. This is significantly higher than taxpayers have been used to over the past decade and has the potential to be extremely costly if payment deadlines are missed.
The data obtained by RSM UK through the FOI request covers the three-year period to October 2023. The late payment interest paid to HMRC within that period amounts to a staggering £638m.
Analysis of the underlying figures within this total demonstrates a significant upward trend, driven in part by the large increase in tax and NICs paid by individuals in recent years.
In the 12-month period to October 2021, late payment interest paid to HMRC totalled just over £127m. This increased to £159m in the year to October 2022 and then rose again to £345.8m in the year to October 2023.
Despite the late payment interest rate rising from 2.60% to 7.75% in the same period, the figures provide an indication that the level of unpaid liabilities has also increased from c.£2.9bn to c.£3.7bn in the period between October 2020 and October 2023.
With the latest 31 January filing deadline for self-assessment tax returns now gone, individuals and trustees who are concerned about outstanding tax liabilities should look to address their tax affairs as soon as possible. The sooner a taxpayer’s position is reviewed, the longer they will have to prepare to meet any upcoming tax liability, negotiate payment plans with HMRC and consider options for improving tax-efficiency and reducing future bills.