HMRC Announced Changes To Interest Rates For Tax Payments 2025
- MAZ
- Oct 3
- 20 min read
Understanding HMRC's 2025 Interest Rate Changes on Tax Payments: A Practical Guide for UK Taxpayers and Business Owners
When HMRC announced the new interest rates for tax payments in the UK for 2025, many taxpayers and business owners found themselves scratching their heads. Interest rates on tax payments might seem like a dry topic but, believe me, they matter—especially when you’re facing unexpected charges or trying to manage cash flow in your business.
Picture this: You’ve just filed your Self Assessment tax return or made a PAYE submission, but now HMRC is sending you a letter about interest charges on late tax payments. What does this interest rate change mean for you? How do you know if you’re being charged correctly? And could you be earning interest on overpaid tax? Let’s break it down with real-world clarity and practical advice, to cut through all the jargon.
What Has HMRC Changed About Interest Rates for 2025?
Effective from 1 August 2025, HMRC adjusted the interest rates applied on late and early tax payments under the powers set out in the Finance Act. Here’s what you need to know:
● Interest on Late Payments increased slightly from 3.25% to 3.50% per annum.
● Interest Paid by HMRC on Repayments (Overpayments) decreased from 1.00% to 0.75% per annum.
● These rates apply across various taxes including Income Tax, Corporation Tax, Capital Gains Tax, and VAT.
● The interest is calculated daily on the outstanding amount, aiming to encourage timely payments without overly penalising genuine errors.
The increase in the late payment interest reflects the Bank of England base rate movements, which influence HMRC’s rates. The drop in repayment interest means you might earn a little less interest from HMRC if you’re owed a refund. Given this, it’s now more important than ever to avoid overpayments where possible and stay on top of your tax payments.
Why Do These Interest Rates Matter to You?
Whether you’re employed, self-employed, or running a business, interest charges on late payments can have a real cash flow impact. Conversely, understanding how repayment interest works means you avoid missing out on money you rightly deserve.
In my years advising clients across London, Manchester, and Edinburgh, I’ve seen businesses badly hit by unexpected interest charges simply because they miscalculated their tax liabilities or delayed payments thinking the penalties were fixed sums. Interest charges continue accruing daily, adding up.
Meanwhile, some employees with side income streams discovered they were due repayments but didn’t know how to claim them, missing out on hundreds of pounds. And business owners often underestimate how interest works when they dispute HMRC’s tax assessments.
2025/26 Tax Year Context — Rates, Allowances, and Where Interest Ties In
To properly assess if your interest charges are correct or if you might earn interest on overpayments, you must understand the underpinning tax landscape for 2025/26.
Here are the key tax rates and allowances broadly relevant:
Tax Element | 2025/26 UK-wide Rate | Notes |
Personal Allowance | £12,570 (frozen since 2019) | Reduced by £1 for every £2 over £100K income |
Basic Rate Income Tax | 20% on income £12,571–£50,270 |
|
Higher Rate Income Tax | 40% on income £50,271–£125,140 |
|
Additional Rate | 45% over £125,140 | Applies in England, Wales, NI |
Scottish Income Tax | 19% to 47% across 5 bands | Varies by band; consult revenue.scot.gov.uk |
Welsh Income Tax | 10% to 46% bands | Welsh rates on top of UK bands |
National Insurance | Threshold £12,570; Rates vary | Class 1 and 4 tariffs vary; frozen thresholds |
Corporation Tax | 25% standard rate | Small profits rate remains 19% |
Why does this matter for HMRC interest? Your actual tax liability—when calculated using these bands and allowances—determines how much you owe or if you’re due a repayment. Interest then kicks in as either a charge on late payment or a credit on repayments.
Common Reasons for Interest Charges Based on Real Cases
● Late filing or payment: A contractor in Leeds missed the January 31 deadline by two weeks. HMRC charged 3.50% interest on the outstanding £10,000 tax liability. This worked out to roughly £27 interest for that short period but would escalate the longer payment was delayed.
● Underreported earnings: A designer in Bristol forgot to declare consultancy income from abroad. HMRC imposed interest on the subsequent tax owed once corrected.
● Disputed tax assessments: A retailer in Birmingham contesting a capital allowances claim faced interest charges on the assessed underpayment while the dispute was ongoing.
● Refund delays: A teacher in Glasgow overpaid taxes due to PAYE coding errors. She received an interest credit at 0.75% on her £500 overpayment after six months.
How to Check if Your Interest Charges Are Accurate
Step right up—checking HMRC's interest calculations on your account is easier than it looks.
Access your personal tax account or business tax account via GOV.UK personal tax account or business tax account to see detailed transactions.
Identify any interest charges or credits applied. HMRC will break down amounts, calculation dates, and rates.
Confirm the rate used: After 1 August 2025, the late payment interest rate must be 3.50%, while repayment interest should be 0.75%.
Calculate interest manually for verification: Interest is simple daily interest based on the principal amount, at an annual rate divided by 365 (or 366 if leap year).
Daily Interest=Outstanding Amount×Annual Interest Rate365
Daily Interest=
365
Outstanding Amount×Annual Interest Rate
Multiply the daily interest by the number of days outstanding for total.
Cross-check with HMRC correspondence or calculations provided with your statement or tax return.
Why Verifying Interest Charges or Credits Helps You
None of us loves tax surprises but here’s how avoiding or managing interest payments can benefit you:
● Save cash flow for your business by resolving payment issues promptly.
● Recover overcharged interest if HMRC applied outdated rates or miscalculated.
● Avoid penalty triggers, as prolonged interest accruals often coincide with compliance issues.
● Spot errors in under or overpayments, especially if you have multiple income streams or tax codes.
Who Needs to Pay Attention Most?
● Employees with secondary jobs or side incomes may be affected by emergency tax codes, leading to overpayments or underpayments, with interest implications.
● Self-employed and freelancers, particularly those filing late or making payments on account, face higher risk of late payment interest.
● Business owners working under CIS or expanding operations should watch for misapplied deductions or delayed payments triggering interest.
● Scottish/Welsh taxpayers must factor in their unique tax bands which influence final liabilities and interest calculations.
HMRC Interest Rates Dashboard
How to Verify Your HMRC Interest Charges and Avoid Costly Mistakes: Step-by-Step Practical Guide
Now, let’s think about your situation—whether you’re an employee spotting interest on your tax account, self-employed navigating payments on account, or a business owner trying to keep track of multiple tax streams. This is where you can turn confusion into control, by verifying those interest charges or credits with confidence.
Step 1: Check Your Personal or Business Tax Account Regularly
The first practical step is getting familiar with your personal tax account (for individuals) or business tax account (for companies, landlords, and self-employed):
● Register or log in at GOV.UK personal tax account or business tax account.
● Once logged in, head straight to the “Payments” or “Tax Liability” section.
● Look for any entries labelled “Interest charged” or “Interest paid.”
● These entries display the amounts, the interest rate applied, and the dates used for calculation.
Anecdote: A client from Sheffield was baffled when he saw a £120 interest charge weeks after filing. Accessing his tax account revealed the correct interest rate (3.50%) applied over 15 days for a late payment—saving him from disputing a wrongly inflated figure he feared.
Step 2: Understand How HMRC Calculates Interest
HMRC uses a simple daily interest formula based on the outstanding tax amount and the applicable interest rate:
Interest=Outstanding Tax×Annual Rate365×Number of Days
Interest=Outstanding Tax×
365
Annual Rate
×Number of Days
For example, if you owe £5,000 tax late and the rate is 3.50%, daily interest is:
£5,000×0.035365=£0.48 per day
£5,000×
365
0.035
=£0.48 per day
Over 30 days late, interest totals about £14.40.
This daily accrual means every day counts, so delays can quickly add up.
Step 3: Verify If Your Interest Rate Is Correct
After August 1, 2025:
● The late payment interest rate is 3.50% per annum.
● The repayment (overpayment) interest rate is 0.75% per annum.
If you spot a discrepancy (e.g., HMRC charging 4% or paying only 0.5%), challenge it immediately with them.
Step 4: Audit Your Tax Figures Before Interest Calculation
Interest is only meaningful if the underlying tax liability or repayment is correct.
To avoid painful surprises:
● Review your income sources: salary, dividends, rental income, side gigs, investments, etc.
● Double-check deductions and reliefs: personal allowance, business expenses, pension contributions.
● Watch out for multiple jobs or pension incomes: often triggers emergency tax codes leading to errors.
● Use your latest P60s, P45s, Self Assessment tax return summaries, and P11D forms.
Client Story: Jane, a London freelancer, failed to declare her part-time tutoring income for 2023/24 and got hit with late payment interest after HMRC corrected her return. Catching that omission earlier would’ve saved her nearly £200 in interest.
Step 5: Use Official Tax Tables to Cross-Check Liability
Here’s a handy snapshot of 2025/26 tax bands across the UK to help verify your tax due before interest:
Region | Income Band | Applicable Income Tax Rate |
England, Wales, NI | £12,570 - £50,270 | 20% (Basic Rate) |
| £50,271 - £125,140 | 40% (Higher Rate) |
| £125,141+ | 45% (Additional Rate) |
Scotland | £12,570 - £14,732 | 19% (Starter Rate) |
| £14,733 - £25,688 | 20% (Basic Rate) |
| £25,689 - £43,662 | 21% (Intermediate Rate) |
| £43,663 - £125,140 | 41% (Higher Rate) |
| £125,141+ | 47% (Top Rate) |
Why does this help? If your assessed tax liability seems inconsistent with these bands, there might be errors that affect interest accuracy.
Step 6: Practical Worksheet Example for Self-Employed
Consider Sam, a self-employed photographer who files by 31 January 2025 but only pays the first payment on account on time for 2024/25. He misses the second payment due 31 July 2025. Here’s how he can calculate interest on the missed payment:
Detail | Value |
Tax amount due for 2nd payment | £4,000 |
Interest rate on late payments | 3.50% per annum |
Days late (from 1 Aug to 30 Sep) | 60 days |
Daily interest rate | 3.50%365=0.00959% 365 3.50% =0.00959% per day |
Daily interest amount | £4,000 × 0.0000959 = £0.384 |
Total interest due | £0.384 × 60 days = £23.04 |
Check HMRC’s statement to see if the interest charged matches or is in ballpark range.
Step 7: Watch for Common Errors That Trigger HMRC Interest
● Unreported income: Side contracts or overseas earnings not declared can trigger surprise charges and interest.
● Incorrect tax code: Emergency tax codes are common for second jobs or pensioners, often leading to overpayments or later interest on underpayments.
● Late Self Assessment filing/payments: Even a few days’ delay can cause accumulating interest.
● Disputes over business expenses: Disallowed expenses after enquiry can increase tax due, attracting interest.
● Wrong tax relief claims: Misapplication of marriage allowance, blind person’s allowance, or residential property income deductions.
Case in point: A business in Bristol misclaimed CIS deductions, causing HMRC to raise assessments plus interest on £12,000 underpaid tax — learning the hard way they’d underestimated HMRC’s scrutiny.
Step 8: Handle Scottish and Welsh Income Tax Variations
If you live or work in Scotland or Wales, your tax bands and rates differ, impacting:
● Your overall liability.
● The calculation basis of interest on late or unpaid tax.
For instance, Jamie from Edinburgh paid a higher tax rate due to Scotland’s intermediate tax band. HMRC reflected this in the interest calculation on late payments, something many English taxpayers overlook.
Consult Revenue Scotland official site or Revenue Wales for precise band updates.
Step 9: Emergency Tax and Interest — How to Avoid Overpaying
Emergency tax is a temporary coding assigned when HMRC doesn’t have all your income details. It usually means you pay tax at a higher rate than necessary, which can cause:
● Overpayment (you may be due a refund).
● Potential for HMRC to pay you interest on the overpayment — now at 0.75%.
Practical Tip: Submit a P46 or updated tax code form ASAP to HMRC to correct this. Keeping your tax records up to date avoids unnecessary interest loss or gains.
Step 10: What If You Disagree With HMRC Interest Charges?
● Review all evidence – tax return details, payment receipts, and HMRC’s calculation.
● Contact HMRC using your personal or business tax account messaging or phone; explain your queries.
● If necessary, raise a formal dispute or complaint.
● Keep evidence organized to support your case.
Example: Maria from Leeds successfully appealed an erroneous interest charge caused by a system glitch after her repayment was delayed.
Navigating HMRC Interest Changes for Business Owners and Complex Tax Situations: Practical Insights and Profitable Strategies
So, the big question on your mind might be: how do these HMRC interest rate changes specifically affect me as a business owner or in more complex tax circumstances? Let’s dig into the nitty-gritty—not just the theory but the practical implications that can either cost you money or save you from unexpected bills.
Interest on Corporation Tax and Business Payments: What You Need to Know
For limited companies, Corporation Tax (CT) payments often carry bigger stakes when interest is involved.
● The standard CT rate is 25% for large profits but remains 19% for small profits (under £50,000), so your tax bill depends heavily on profit banding.
● HMRC charges 3.50% interest post-August 2025 on any late CT payments.
● Payments on account rules apply, especially for large companies, meaning missing instalments triggers interest.
● Businesses that use Construction Industry Scheme (CIS) deductions must be extra vigilant, as disputes about subcontractor payments can lead to retroactive tax and interest demands.
Case Insight: A client running a construction firm in Manchester underestimated CIS deductions, leading HMRC to reassess £30,000 of tax owed — plus £1,050 interest on late payments. After careful negotiation, they structured future payments to avoid ongoing interest charges.
How Landlords Should Tackle Interest on Rental Income Tax Payments
If you’re a landlord, keeping track of your tax payments can be especially tricky, as rental income often involves several income streams and allowable expenses. Many landlords:
● Overlook small underpayments on rental income declared via Self Assessment.
● Miss payment deadlines on supplementary CT or capital gains tax due from property sales.
● Are unaware that HMRC applies interest immediately on late payments — no grace period.
Real-World Example: Tim, a landlord from Cardiff, discovered a surprise £250 interest charge due to late second payment on account. He hadn’t realised that rental income tax was payable by direct payments on account despite receiving income monthly.
High-Income Child Benefit Charge (HICBC) and Interest
This is one of those trickier areas I've encountered firsthand. High earners who receive Child Benefit and pay the HICBC can face unexpected tax and interest consequences if they don’t declare relevant income correctly.
● HICBC is payable if income exceeds £50,000.
● Underpayments in HICBC tax, especially where income fluctuates, can result in late payment interest at 3.50%.
● I’ve seen clients trip up where income from multiple sources (e.g., spouse dividends plus self-employment) wasn’t combined properly, causing underpayment and interest.
Pro tip: Keep detailed records of both your and your partner’s income, and review HMRC’s online calculator annually to avoid surprises.
Remote Working, Cross-Jurisdiction Tax, and Interest
Post-2025, remote working arrangements, especially across UK nations (England, Scotland, Wales, NI), complicate tax code application and hence interest calculations when errors arise.
● Employees working from Scotland but paid by an English company may face coding errors.
● You could be assigned an emergency tax code unexpectedly.
● Errors trigger underpayments or overpayments subject to interest.
I counselled a tech firm where several employees faced surprise interest charges after HMRC took months to recalibrate tax codes for remote workers—something only caught through a detailed HMRC account audit.
Managing Interest When You Have Multiple Income Sources
Having several income streams is common — salaried job, freelancing, dividends, rental income — but it increases risk of:
● Miscalculations in total taxable income.
● Mistakes in personal allowance allocation.
● Overlooked emergency tax codes triggering underpayments.
Checklist for Multi-Income Taxpayers:
● Add together income from all sources before calculating tax.
● Regularly check your tax code updates.
● File Self Assessment if advised even when primarily PAYE.
● Keep meticulous records of all income and related expenses.
An Aberdeen client came to me after HMRC charged £400 interest on unpaid tax. She was unaware that her freelance income put her into a higher bracket, triggering underpayment. This could have been avoided by annual income aggregation.
Practical Strategies to Minimise or Avoid HMRC Interest Charges
Here’s where your accountant persona pours in with hands-on tips:
● Pay as much as you can, when you can: Even partial payments reduce interest.
● Use HMRC's ‘Time to Pay’ service: It spreads payments without excessive interest penalties.
● File tax returns early: The sooner you file, the sooner you know your liability and avoid estimated payments that may cause miscalculations.
● Review tax codes regularly: Catch emergency or incorrect codes early.
● Keep up-to-date with payment deadlines: Especially for payments on account and CT instalments.
● Challenge HMRC interest charges: If calculations seem off or delays are due to HMRC processing.
A Tailored Approach for Business Owners Deducting Expenses and Spotting Underpayments
Business owners frequently miss legitimate deductions, affecting how much tax and interest they should pay.
● Double-check your expenses against HMRC’s allowable expense criteria.
● Ensure capital allowances are properly claimed.
● Maintain clear documentation — receipts, invoices — to defend claims.
● Review your Self Assessment computations step-by-step to catch errors before submission.
Insightful Case: A new café owner in Bristol reduced his tax bill by £3,000 after correctly claiming repairs expenses. This dropped his payable tax below the threshold that would attract interest on late payment.
Summary of Key Points
HMRC interest rates on late payments increased to 3.50% after August 2025; repayments earn 0.75%. These rates impact cash flow significantly.
Check your personal or business tax account regularly to stay informed about interest charges or credits.
Interest is calculated daily on outstanding amounts, so prompt payments or partial payments reduce your interest cost.
Verify your overall tax figures first to avoid compounding interest on incorrect liabilities.
Be aware of Scottish and Welsh tax variations as they influence your final tax and interest calculations.
Self Assessment filers, especially self-employed and landlords, are high-risk groups for unexpected interest charges.
Emergency tax codes and multiple income streams often cause errors leading to interest on underpayments or lost repayment interest.
High-Income Child Benefit Charge users need careful income monitoring to avoid interest on unpaid taxes.
Use HMRC’s Time to Pay arrangements and dispute wrongful interest charges to manage payments better.
Business owners should meticulously claim allowable expenses and capitals allowances to keep tax and interest liability accurate.
FAQs
Q1: How can someone tell if the interest charged by HMRC on a late tax payment is correct?
A1: Well, it’s worth noting that HMRC applies interest daily on the outstanding tax amount using a fixed annual rate—for 2025/26, that’s 3.50%. To check accuracy, you’d need to know the exact overdue amount, the number of days late, and multiply by the daily interest rate (annual rate divided by 365). In my experience with clients, the key is accessing your personal or business tax account to get official figures then cross-checking them using a straightforward calculation. Surprises usually come from misunderstanding the interest period or mixing penalties with interest, so keep those separate when verifying.
Q2: What steps should an employer take if they suspect their employees’ PAYE tax codes are causing underpayments leading to interest charges?
A2: Employers lending a hand here make a huge difference. First, review any emergency or temporary tax codes issued by HMRC—these often lead to under- or over-withholding. You can encourage employees to check their personal tax accounts, where updated codes are posted. If you spot discrepancies, submit corrected PAYE payroll reports promptly. I’ve seen shop owners in Birmingham who avoided HMRC interest charges simply by swiftly resolving coding errors before year-end reconciliations. Quick action minimizes late payment interest on underpaid tax.
Q3: Can self-employed individuals avoid interest charges on payments on account, and how?
A3: Avoiding interest on payments on account requires good cashflow and forecasting. Since payments on account fall due by 31 January and 31 July, paying these promptly is crucial. If you expect your profits to fall in the next year, you can request to reduce payments on account using form SA303, which, if done accurately, saves unnecessary overpayments but beware of underpaying and incurring interest. A freelance web designer I advised had his interest charges wiped by carefully recalculating payments mid-year. Being proactive and realistic about income variations is key.
Q4: Does HMRC charge interest differently if the taxpayer lives in Scotland or Wales?
A4: While the interest rates themselves remain the same across the UK, differences arise because Scottish and Welsh taxpayers pay income tax at different bands and rates. This means their total tax due can vary, and any late payment interest is calculated on the resultant amount owed. For example, a Scottish taxpayer in the intermediate bracket might owe more tax than an English counterpart on the same earnings, leading to greater interest if payments are late. I’ve had clients in Edinburgh check their accounts thoroughly to catch any missed band adjustments and avoid piling interest.
Q5: What happens if someone has multiple jobs or pension incomes affecting their tax code—can this lead to unexpected interest charges?
A5: Yes, it can. Having several employments or pensions often triggers emergency or ‘Cumulative’ tax codes that may not allocate personal allowance correctly across income streams. This situation can create underpayments during the year, meaning HMRC will charge interest on the shortfall if settled late. For example, a Liverpool nurse I worked with paid higher-than-expected interest because her secondary job was taxed on an emergency code all year. The fix is to combine incomes correctly, check tax codes on your personal tax account, and contact HMRC for adjustments before the tax year ends.
Q6: How does HMRC calculate interest on late payments if a taxpayer is on a time-to-pay arrangement?
A6: The important point is that HMRC still charges interest throughout the instalment period, usually at the same 3.50% annual rate. Time-to-pay agreements avoid penalties but not interest, which reflects the real cost of delayed payment to the Exchequer. I’ve seen businesses negotiate longer arrangements but get hit with sizeable interest amounts if they underestimate the daily accrual. To minimise costs, it’s best to pay as much upfront as possible or ask HMRC about interest-free options, which are rare but sometimes available for hardship cases.
Q7: If someone overpays their tax, how does HMRC calculate the repayment interest, and when does it start?
A7: Overpayment interest accrues at a lower rate of 0.75% per annum and starts typically after 31 days from HMRC’s receipt of the overpayment or the due date of the payment. This means if you’ve paid too much tax, the earlier HMRC acknowledges and processes your refund, the quicker your money earns interest. A teacher I helped in Glasgow recently found that delays in HMRC processing meant her repayment interest was higher than expected, so submitting claims and paperwork promptly is crucial to maximise this modest interest gain.
Q8: What pitfalls should gig economy workers watch out for regarding HMRC interest changes?
A8: Gig workers often juggle erratic incomes and may not keep up with quarterly Self Assessment payments or under-declare earnings, both common triggers for interest charges on late payments. Plus, many don’t register for Self Assessment early enough and thus miss initial payments, compounding interest. A driver I worked with in Leeds was caught by surprise with £150 interest for late payment linked to a missed second payment on account. Simple regular bookkeeping and early registration with HMRC can avoid these costly pitfalls.
Q9: Can tax underpayments arising from dividends and savings income attract HMRC interest, and what can taxpayers do?
A9: Absolutely—if you don’t declare additional income above the Personal Savings Allowance or dividend allowance correctly, HMRC will charge both tax and interest on underpaid amounts. A client in Bristol who ignored small dividend payments from investments accumulated over years ended up with both tax bills and several hundred pounds of interest charges. Keeping track of all income streams and updating your Self Assessment information regularly is vital to dodge these surprises.
Q10: How do emergency tax codes impact overpayments or underpayments, and what is the best way to rectify them before interest builds up?
A10: Emergency tax codes are interim codes HMRC applies when they lack full income info, often leading to over-taxation or unexpected under-taxation. Overpayments don’t usually attract interest until a claim is made and processed, but underpayments could begin accumulating interest quickly if left unpaid. The best approach is to submit a P46 or provide HMRC updated income details through your personal tax account to get a corrected code. Passed a year with emergency coding? File a Self Assessment return to square things up sooner and avoid interest surprises.
Q11: In cases where HMRC makes an error in applying interest, what practical steps should taxpayers take?
A11: When things don’t add up, documenting every communication and calculation is essential. First, raise the discrepancy via your personal or business tax account, providing evidence of correct payment dates or amounts. I’ve seen several clients in Manchester successfully get interest charges waived after demonstrating HMRC applied a superseded interest rate or misdated a payment. If the issue persists, escalate the case formally through HMRC complaints—persistence and thorough records pay off here.
Q12: How do National Insurance contributions interact with tax payments and HMRC interest charges?
A12: While NI contributions are separate from income tax, underpayments of Class 1 or Class 4 NIs through Self Assessment attract similar interest charges if not cleared on time. I advised a self-employed client who ignored Class 4 NI deadlines and faced both NI arrears and interest piling up. The takeaway: don’t treat NI as a separate afterthought—the same due diligence applied to tax payments applies here, including careful forecasting of due dates.
Q13: What’s the impact of late VAT payments on HMRC interest, and are the rates the same as income tax?
A13: VAT late payments do trigger interest but HMRC applies different rules. For late VAT payments, interest is charged starting the day after the due date until the payment is made and is currently aligned with base rate-related calculations. For 2025/26, this roughly correlates with a 3.50% interest rate. Companies often get confused because penalties differ. From my experience with small businesses, monitoring VAT due dates carefully alongside tax payments helps avoid unexpected combined interest charges.
Q14: Can a company reclaim interest paid on late tax payments if HMRC was responsible for delays or errors?
A14: Yes, if HMRC delays processing payments or issues wrong assessments causing a company to pay interest unnecessarily, it can apply for repayment of that interest. However, the company must provide clear proof of HMRC default and submit a formal claim quickly. I’ve helped clients in Stoke-on-Trent recover thousands this way, but it requires patience and good record-keeping to prove the case.
Q15: How do changes in the Bank of England base rate typically influence HMRC interest rates on tax payments?
A15: HMRC aligns its interest rates closely with the Bank of England’s base rate movements, adjusting on a quarterly basis or as specified by statute. The recent rise to 3.50% for late payments reflects this. Knowing this helps taxpayers anticipate potential future adjustments and budget accordingly. One retailer I advised avoids surprises by reviewing base rate announcements annually and prepping cashflow buffers for anticipated interest hike periods.
Q16: What impact does remote working across UK nations have on interest charges due to tax code mix-ups?
A16: Remote working since the pandemic led to more complex tax residence situations. If HMRC assigned a wrong tax code based on your workplace rather than home location (e.g., English employer but commute from Wales), it can cause underpayments attracting interest. A tech consultant in Cardiff I advised discovered a mismatch when HMRC later corrected his code, resulting in interest charges—but also a refund, once adjusted. Checking your tax code carefully post-relocation is vital to avoid surprise interest costs.
Q17: How can a landlord best avoid interest on unpaid tax related to rental income?
A17: The core strategy is keeping on top of deadlines for rental income declarations via Self Assessment, including payments on account. Many landlords miss the July 31 second payment on account, unintentionally triggering interest charges. A landlord I worked with in Leeds avoided £300 in interest simply by setting up calendar reminders and making direct debit payments early. Using professional accounting software that flags deadlines can also be a lifesaver.
Q18: Can HMRC charge interest on disputed tax amounts where an appeal is pending?
A18: Usually, yes. Even if you dispute the tax due, interest runs on the unpaid amount to reflect the delay in settling the official liability. However, if a tribunal or appeal later decides in your favour, any interest overcharged should be refunded. This means while dispute resolution progresses, plan financially for interest costs to avoid cashflow shocks. An Edinburgh contractor recently learned this the hard way after contesting an IR35 tax adjustment.
Q19: What practical tips help employers ensure correct interest-free payroll adjustments after staff salary changes?
A19: Employers should update payroll systems immediately when notified of staff salary changes to avoid incorrect tax code application leading to under or overpayment of tax—and ultimately interest charges. Keeping a record of adjustments and communicating with HMRC through RTI submissions helps prevent misunderstandings. I’ve seen London-based employers drastically reduce employee tax underpayments by scheduling mid-year payroll reviews.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
Disclaimer:
The information provided in our articles is for general informational purposes only and is not intended as professional advice. While we strive to keep the information up-to-date and correct, MTA makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained in the articles for any purpose. Any reliance you place on such information is therefore strictly at your own risk. The graphs may also not be 100% reliable.
We encourage all readers to consult with a qualified professional before making any decisions based on the information provided. The tax and accounting rules in the UK are subject to change and can vary depending on individual circumstances. Therefore, MTA cannot be held liable for any errors, omissions, or inaccuracies published. The firm is not responsible for any losses, injuries, or damages arising from the display or use of this information.
