HMRC hikes late payment fees: what are the new rates?

There’s yet more bad news for SMEs on the financial front as the new tax year rolls around.

As of April 6, HM Revenue & Customs (HMRC) has reportedly increased the interest rate paid on late tax payments in a bid to encourage self-assessment taxpayers to pay on time.

In this guide, we’ll break down the changes, why it matters to businesses, and offer practical advice to avoid facing penalties.

HMRC justifies rate change, but is it fair?

According to investment platform AJ Bell, the key change is that the interest rate for late tax payments has increased from 7% to 8.5%. This adjustment will impact the 12 million taxpayers who file self-assessments, resulting in higher costs for those who miss payment deadlines.

In a press release published in February, HMRC stated that its interest rates aim to be fair, explaining that “the late payment interest rate encourages prompt payment.” It argued that the repayment interest rate compensates taxpayers who have overpaid.

However, the late payment rate is currently over twice as high as the repayment rate, which stands at 3.5%. This disparity means that taxpayers pay much more interest on late payments than they receive on refunds, raising concerns about fairness.

How should SMEs respond?

While it’s not exactly good news, the new rates are at least avoidable if you stay on top of upcoming tax deadlines.

To start, it’s important to improve your record-keeping. By establishing a reliable, HMRC-compliant tax management system that suits your business, you can ensure that your self-assessments are conducted accurately.

For example, accounting software can automate much of the tax return submission process for you, making it less time-consuming and reducing the likelihood of errors.

Another smart move is marking important tax deadlines in your calendar. This way, you’ll avoid the late payment interest rates altogether.

If you’ve not submitted a self-assessment tax return before, the deadline for letting HMRC know that you need to is by midnight on October 5 2025.

If you’re sending your tax return on paper, then you must do so before midnight on October 31 2025. 

Online self-assessment taxpayers have more time, with the deadline set for midnight on January 31 2026. But if you want HMRC to automatically collect tax you owe from your wages and pension, you must submit your online return by 30 December 2025.

If all of this sounds a little overcomplicated, you may prefer to seek professional advice or hire an accountant to take care of tax returns for you.

Finally, you should implement good cash flow management to ensure that you have enough cash to fulfil tax repayments and avoid the hiked late payment interest rates.

Compliance, compliance, compliance

In addition to the increased interest rate, last month’s Spring Statement confirmed the recruitment of an additional 500 tax compliance officers by HMRC, on top of a further 5,000 previously announced in the 2024 Autumn Budget.

The combination of higher late payment rates and increased HMRC enforcement heightens compliance risks for SMEs. Businesses nationwide should be vigilant about meeting deadlines to avoid incurring additional financial burdens.

Seb Maley, CEO of tax insurance firm Qdos, warns: “The takeaway here is that compliance is arguably more important than ever.

“Forget to file or pay your tax bill and not only will you pay the price financially, but you also run the risk of being investigated by HMRC – which can be a costly, altogether stressful ordeal without the right protections in place.”