- Over 1.3 million people hit with self-assessment late payment interest for the 2023/24 tax year, an AJ Bell FOI can reveal
- Revised figures for 2022/23 show a record £200 million was collected in late interest, across 1.6 million taxpayers
- HMRC hiked late payment interest rate to 4% above the Bank of England base rate from 6 April 2025
- Expansion of Making Tax Digital is set to shake up self-assessment from 6 April 2026, in what HMRC calls the biggest change to income tax reporting in decades
HMRC charged 1.3 million taxpayers late payment interest for the 2023/24 tax year, a freedom of information request from AJ Bell shows.
The government has raked in over £137 million from late payment interest so far for 2023/24 and the average interest payment stands at just over £100.
The figures only count taxpayers once the interest accrued or late filing penalty have been paid, meaning the figures for the 2023/24 tax year will likely be significantly higher than they are now. This can be evidenced by looking back to the 2022/23 year, where the total amount paid has jumped by over 30% in the last year.
Late payment interest on income tax self-assessment
Source: HMRC, AJ Bell. These figures, including any subsequent revisions, are calculated only once the interest accrued or late filing penalty has been paid. It is therefore likely that the figures for 2023/24 will eventually be revised upwards.
Source: AJ Bell/HMRC, figures for 2023/24 tax year likely to be revised upwards
Charlene Young, senior pensions and savings expert at AJ Bell, comments:
“These latest figures suggest that taxpayers still face difficulty navigating the UK’s complex tax system and HMRC are cashing in as a result. Millions have paid late payment interest in recent tax years, despite moves to relax the rules on who must file a self-assessment return.
“Tax-free allowances for dividends have been repeatedly slashed since 2018, with the current allowance standing at just £500 compared to its original £5,000 level. The rates of income tax on dividends also went up in 2022 and will jump again for basic and higher rate taxpayers next tax year. It’s a similar story when it comes to profits on investments outside of ISAs and pensions, with a lower capital gains tax allowance and recent hikes to the rates of tax due.
“This perfect storm drags smaller investors into calculating and paying these taxes for the first time but also means bills for existing taxpayers have jumped. Taxpayers can become unstuck if they find the systems and deadlines difficult to navigate, and others potentially face higher interest and penalties when it comes to mistakes and not paying on time.
“Late payment interest was hiked from 6 April 2025 to base rate plus 4%, when it had previously been base rate plus 2.5%. Interest accrues daily on the original amount owed, and although rates have been coming down, the trajectory of base rate cuts is now looking more uncertain, suggesting that individuals may have to foot an even higher interest bill going forward.
“The government is pushing ahead with plans to modernise, simplify and improve the tax system, but is the imminent expansion of Making Tax Digital (MTD) the solution?
What is MTD?
“The government hopes the move to MTD for income tax self-assessment will close the tax gap, with quarterly reporting improving accuracy, and aiming to raise £780 million by 2028-29. However, for landlords and small business owners this will undoubtedly create additional admin, and a new regime of penalty points to get to grips with. Partnerships and incorporated firms will be exempt from the initial income tax roll out, although many will already be under the MTD regime for VAT.
“From 6 April 2026, sole traders and landlords with a qualifying income over £50,000 must submit quarterly online returns, with the qualifying threshold gradually decreasing to £30,000 from April 2027 and £20,000 the year after. What’s more, taxpayers falling into MTD (or their agents) must use and pay for compatible software to file, and will no longer be able to rely on HMRC’s own free system.
“According to AccountingWEB, a staggering 97% of unrepresented taxpayers used HMRC’s system to file self-assessment returns before the 31 January 2025 deadline for 2023/24 - equating to 4.5 million returns. While not all of these will be in scope for MTD, it shows a huge change required from 6 April 2026 for those subject to the new rules.
“HMRC is giving taxpayers some time to adjust to the changes. They will not apply penalty points for late quarterly updates for the first year, but penalty points will still apply for late end of year returns. The government has also confirmed that the new penalty regime will apply to all income tax self-assessment taxpayers from 6 April 2027, even if they’re not already due to join the system. This is to ensure that there are not two separate systems running alongside each other.
How do penalties under MTD differ from the current system?
“Under the current self-assessment filing system, taxpayers face a penalty for missing the deadlines for submitting a return or paying a bill. Penalties start at an initial £100, with added fines the longer the return goes unfiled. For unpaid tax, interest applies from the date the payment was due, plus a 5% fine after 30 days, with additional penalties after six and twelve months.
“Under MTD, late payment penalties for income taxpayers will be 3% of the tax outstanding where tax is overdue by 15 days, an additional 3% where tax is overdue by 30 days, and an annual rate of 10% per year on the outstanding balance where tax is overdue by 31 days or more.
“Late submissions of quarterly updates will be subject to penalty points after 6 April 2027, with one penalty point for each late submission, and taxpayers will be given a penalty points threshold of four points.
“Although the penalty points system could prove fairer when it comes to mistakes, and the one year soft landing may provide some relief, individuals could face higher bills under MTD for late payment of money owed due to the new penalties. A self-employed person owing £25,000 income tax will likely find themselves owing around £26,900 after four months with tax or interest. Under the new MTD rules this could be close to £28,000.
“While the changes may help HMRC to clamp down on unpaid tax, it remains to be seen how easily business owners are able to adapt, and whether HMRC will end up financially benefiting from low levels of engagement with the new system.”
