Penalties for late tax payment are set to rise next week

Thousands of people who are late paying their tax bills will be hit with higher charges from next week after interest rates rose again.  

This is because HMRC charges interest on any late tax payments and last week the Bank of England increased the base rate for the 14^th consecutive time to 5.25%.

Therefore, because the base rate has changed, HRMC interest rates for late payment and repayment will increase.

The change will affect people from:

• 14^th August 2023 for quarterly instalment payments
• 22^nd August 2023 for non-quarterly instalment payments

The HRMC has set late payment interest at base rate – 5.25% - plus 2.5%. Repayment interest is set at base rate -1%, with a lower limit of 0.5%.

The penalty for late payment is designed to encourage people to pay on time, while the rate of repayment interest ensures taxpayers are compensated for loss of money that could be used elsewhere.

What happens if you can’t afford to pay your tax bill?

You should contact HRMC as soon as possible if you’ve missed a tax deadline or know that you’ll not be able to pay a tax bill on time.

If you can’t pay your tax bill in full, you may be able to set up a repayment plan to pay it in instalments – known as a ‘time to pay’ arrangement.

You’ll not be able to set up a payment plan if HRMC does not think you’ll keep up with payments.

If you don’t get in contact with HRMC or can’t agree an instalment plan, then HRMC might:

• Ask a debt collection agency to collect money
• Collect what you owe directly from your wages or any monthly pension payments you get
• Take things you own and sell them
• Take money directly from your bank account or building society savings
• Take you to court
• Make you bankrupt

Any costs, like auction fees, are normally added to your debt. HRMC will tell you before taking any of these actions and will explain your rights, costs, and options.