From April 2025, HMRC has not only raised the rate of interest it charges on late tax payments but also the penalties are becoming more severe. For business owners and individuals alike, this means the cost of missing a deadline is higher than ever before.
Tax compliance has always been important, but with interest rates elevated and HMRC taking a tougher stance on late submissions, the financial impact of even a small slip-up is growing. Whether you manage your own books or work with an accountant, now is the time make sure you have robust processes in place.
What this looks like in practice
- Late payment interest is now charged at Bank of England base rate of 2.5%. With the base rate still well above the lows from a few years ago, the interest adds up quickly if you fall behind on payments. For many businesses, this could mean hundreds and even thousands of pounds in extra costs over time.
- Late filing penalties can hit even if you are just one day late. HMRC’s system is strict and penalties escalate the longer a return remains unfiled. Miss a deadline by more than three months and fixed fines kick in, with further penalties accruing after six and twelve months.
- Daily penalties may apply for prolonged delays. If a return is significantly overdue, HMRC can charge daily penalties until it is submitted, turning a small oversight into a major liability.
How to avoid falling into the penalty trap
The good news is that most penalties and interest charges are entirely avoidable with some simple steps:
- File on time even if you can’t pay straight away. Submitting your return avoids additional late filing penalties. If cash flow is tight, you can set up a time-to-pay arrangement with HMRC rather than letting interest and charges spiral.
- Set aside funds regularly for tax liabilities. Treat tax as a recurring expense and build it into your cash flow planning. Setting aside a percentage of income as you go helps prevent a last-minute scramble.
- Use reminders and automation. Calendar alerts, automated notifications from your accounting software or even a simple checklist can keep you ahead of key deadlines.
- Keep proof of submission and payments. Store confirmation receipts and payment records in one place so you can evidence compliance quickly, just in case HMRC queries your records.
Final thoughts
Interest and penalties are more than just an administrative headache; they are an unnecessary drain on your profits. By taking a proactive approach, you can stay compliant, protect your cash flow and avoid giving HMRC more of your hard-earned money than necessary.
Take this as your cue to review your systems, talk to your accountant if needed, and make sure you’re fully prepared for the next filing deadline. A little planning today could save you a lot of stress tomorrow.
If you are looking for some help, please call us on 01173 700 079 or e-mail hello@steppingstonesaccountancy.co.uk. You can also book a free 20-minute call with Yarka – https://calendly.com/yarka-ssa/20min
