Published: 31/03/2025 By Hannah Duncan
The Chancellor’s Spring Statement introduces significant increases in late payment penalties, effective from April 1st. As accountants, we ensure our clients are aware of these changes to prepare accordingly.Starting April 2025, penalties for late income tax payments under self-assessment will rise sharply. Taxpayers who miss payments within a month will face a 10% penalty, more than double the current rate. Penalty rates will increase incrementally: 2% to 3% at 15 days, 2% to 3% at 30 days, and a steep jump from 4% to 10% from day 31 onwards.
These penalties aim to narrow the tax gap but could challenge businesses and individuals with tight cash flow. The upcoming 1.5% increase in HMRC’s interest rate for late payments, generating an additional £1.2bn, will further compound the financial burden.
Business Implications and Accountant Considerations
Initially, heightened penalties will apply to businesses failing to meet VAT obligations on time. From April 2026, they will extend to self-employed individuals and landlords under Making Tax Digital for Income Tax (MTD for ITSA).
Our role is crucial in helping clients navigate these changes. Proactive communication and advising on best practices for timely tax payments are essential. This includes efficient cash flow management, setting aside tax reserves, and considering payment plans with HMRC if necessary.
Concerns Over Fairness and HMRC’s Approach
A growing disparity exists between HMRC’s late payment interest rates and the minimal interest paid to taxpayers due refunds. Taxpayers could pay nearly twelve times the interest rate they receive, highlighting system inequities.
Current and Upcoming Late Payment Interest Rates
- Late-paid tax: Bank of England rate (BR) + 2.5%, rising to BR + 4%
- Late-paid quarterly instalments of corporation tax: BR + 1%, rising to BR + 2.5%
- Late-paid customs duty: BR + 2%, increasing to BR + 3.5%
Final Thoughts: Preparing for the Change
With these changes imminent, taxpayers and businesses should reassess their tax planning strategies. We are here to help manage tax liabilities, avoid penalties, and stay compliant with evolving regulations.
Review your current tax payment procedures and seek professional guidance to avoid costly penalties in the coming tax year.
For concerns, contact our accounts team on 020 8661 7878 or email bsg@turpinba.co.uk. For cash flow advice, contact Dave in our Corporate Finance team at david.rutter@turpinba.co.uk or call him on 07565 426138.