Interest on late income tax payments rises to 8.5% 

As we enter the new tax year, HM Revenue and Customs (HMRC) is cracking down on late payments.

On 6 April, the tax agency increased the interest rate payable on overdue tax by 1.5 percentage points. 

Here, we outline the fines you'll face if you miss the payment deadline, and offer advice on what to do if you're struggling to pay.

Interest rate for late tax payments rises to 8.5%

As of 6 April, interest rates for late payments are now set at the Bank of England base rate plus 4%. 

This is up 1.5 percentage points from last year, when rates were set at the base rate plus 2.5%. 

The increase was announced in last year’s Autumn Budget and came into effect in line with the start of the 25-26 tax year. 

With the base rate currently at 4.5%, any money you owe the taxman will now rack up interest at a rate of 8.5%.

1.5 million pay interest on overdue tax

Last year, nearly 1.5 million people missed the tax payment deadline and had to pay interest on their tax bill, according to a Freedom of Information request by the investment firm AJ Bell. 

The average interest payment on tax owed for 2022-23 was £103.33, up 14% from the year before. 

With interest on overdue tax now at its highest rate since 2007, those who fail to meet the deadline face a hefty bill. 

Do you need to file a tax return?

If you’re self-employed or receive income from property, capital gains or dividends, you need to file a self-assessment tax return and pay HMRC any tax you owe. 

How much you'll need to pay is based on your income from the previous tax year, and you can submit your return once the financial year has ended.

The self-assessment tax return deadlines for the 2024-25 financial year (which ended on 5 April 2025) are as follows:

• 31 October 2025: paper tax return deadline
• 31 January 2026: online tax return deadline
• 31 January 2026: tax payment deadline 

There are also penalties for missing the filing deadline. To find out more, see our guide on late tax returns and penalties for mistakes.

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What are the penalties for late payments?

If you miss the tax payment deadline, HMRC will start charging you interest from the day the payment is due. 

As well as interest charges, you can also face the following penalties for late payments:

• After 30 days: a charge equal to 5% of the tax outstanding
• After six months (31 July): a further 5%.
• After 12 months (31 January the following year): an additional 5%

Let’s say your tax bill for the 2023-24 financial year came to £5,000. If you missed the payment deadline on 31 January 2025 and don’t pay your bill until 31 January 2026, you’ll have to pay £750 in penalties and £425 in interest.

How to avoid fines and interest charges

Start planning now, especially if you’re a first-time filer

While 31 January 2026 may feel a long way away, getting started now will give you plenty of time to gather all the information and documents you need to file your tax return and pay your bill on time. 

Now that the 2024-25 tax year has ended, make a list of all your income streams and start gathering relevant receipts, invoices, bills, bank statements, tenancy agreements, student loan statements, and details of any benefits you’ve received. 

If you’re filing a tax return for the first time, you’ll need to register with HMRC by October 5 and wait to receive your Unique Taxpayer Reference (UTR) before you can submit your tax return. This process can take some time, so leaving this to the last minute could mean you face a fine.

• Find out more: what is a UTR number?

Submit your tax return early

You can submit your tax return as soon as the financial year has ended. Last year, nearly 300,000 people filed their self-assessment in the first week of the new tax year.

The deadline for paying your tax bill is the same day as the deadline for submitting your tax return. If you leave your self-assessment to the last minute, you could be faced with a bill that you can’t afford to pay. 

Getting your tax return in early will give you more time to plan ahead and settle your bill before that important January deadline.

Appeal charges if you have a reasonable excuse

Of course, there may be times when you can’t help filing your tax return late. HMRC will accept certain reasons for late submissions, such as an unexpected hospital stay or the recent death of a partner.

If you’ve received charges for a late return or payment and believe you have a reasonable excuse, you can make an appeal. 

If HMRC accepts that you had a reasonable excuse, it should waive any charges.

Speak to HMRC if you're struggling

If you think you may not be able to pay your tax bill on time, you should speak to HMRC as soon as possible. 

You may be able to set up a Time to Pay arrangement, which can help you spread the cost of your tax bill if you’re struggling to afford it. 

You’ll still be charged late payment interest from the day payment is due, but you won’t be charged late payment penalties.

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