According to RSM’s freedom of information request, the amount paid in late payment interest to HMRC has more than tripled since 2021, reaching £409.4 million in 2024.
In 2021, taxpayers paid £131.9m in late interest, but as HMRC’s interest rate peaked at 7.75% in August 2024, this figure soared. The rate was just 2.6% in 2021, when the Bank of England’s (BoE) base rate sat at a record low of 0.1%. By 2023, HMRC’s average rate had risen to 7.08%, climbing further to 7.63% in 2024.
RSM notes the increase is simply due to higher interest rates. They warned that while late payment interest discourages missed payments, it risks putting financially struggling taxpayers into greater debt.
More self assessment taxpayers are now affected, with 11.58m returns filed by 31 December 2024, up from 11.35m a year earlier. However, tax returns were down 700,000 in January 2025 for the 2023/24 tax year despite frozen thresholds pulling more people into the tax net.
HMRC’s interest rate is 2.5% above the BoEs base rate, which is currently 4.5%. From 6 April, it will increase by 1.5%, potentially reaching 8.5%.
The Treasury announced the rise in the Autumn Budget 2023, and expects it to generate £255m a year from 2025/26. HMRC maintains that late payment interest ensures fairness by encouraging timely tax payments.
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