A record amount of late payment interest was paid to HMRC during 2024, with the total of £409 million more than triple what it was three years ago.

The interest rate charged by HMRC was 2.6% at the beginning of 2022 but increased to an average of 7.6% for 2024. The late payment interest rate is currently a punitive 8.25%.

Address funding difficulties

With the cost for late payment so high, it makes sense to use savings to pay off overdue tax liabilities. Simply burying your head in the sand on the issue will just see the debt spiral. You should therefore engage with HMRC and try to agree a payment arrangement, even though this will not prevent interest being charged.

Consider setting up a budget payment plan with HMRC to make weekly or monthly payments towards the next self-assessment tax bill.