HMRC collected millions in late payment interest during the 2023/24 tax year as taxpayers missed deadlines and faced rising charges on overdue bills.
Figures released through a freedom of information request by AJ Bell show that HMRC charged late payment interest to around 1.3 million taxpayers during the year, generating £137m in revenue. The average amount paid in interest was just over £100.
However, the total is expected to rise. HMRC only records late payment interest once it has been fully paid, meaning the final figure for 2023/24 will likely increase as more liabilities are settled.
The data follows a significant change to interest rates. From 6 April 2025, HMRC increased the late payment interest rate to four percentage points above the Bank of England base rate. Previously, the rate had been set at base rate plus 2.5%.
With base rates relatively high, the new formula pushed late payment interest to as much as 8.25% for several months. Because the interest accrues daily on the outstanding balance, costs can increase quickly if payments are delayed.
Historical figures also show the upward trend. HMRC raised £200.1m in late payment interest in 2022/23, up from £194.1m in 2021/22.
Attention is now turning to the rollout of Making Tax Digital for Income Tax. From April 2026, landlords, sole traders and self-employed taxpayers with qualifying income above £50,000 from the 2024/25 tax year will need to follow new digital reporting rules.
Concern is growing that low awareness of the changes could lead to more missed deadlines and higher interest charges. Government forecasts suggest the wider reforms could raise an additional £780m in income tax by 2028/29, although some commentators remain sceptical.
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