Late Payment Consequences

Missing a tax payment deadline results in interest charges and penalties. This article explains how HMRC's late payment penalties work and what to do if you can't pay on time.

Interest charges on late payments

HMRC charges interest on unpaid tax from the day after the payment deadline until you pay in full.

Interest is calculated daily and added to your account. The interest rate is set by HMRC and can change. You can check the current interest rates on GOV.UK.

Interest charges apply automatically. You don't receive a warning before they're added to your account.

HMRC late payment penalties explained

Under HMRC's new penalty system (which applies to Making Tax Digital taxpayers), late payment penalties work differently from the old Self Assessment penalty regime.

The new system has two penalty stages:

First penalty: Days 16 to 30

If your tax remains unpaid 15 days after the deadline, you'll be charged a penalty of 2% of the unpaid amount.

If tax is still outstanding at day 30, you'll be charged an additional 2% of the amount still unpaid.

In most cases, this means a total 4% penalty by day 30.

Second penalty: From day 31 onwards

If tax remains unpaid on day 31, you'll start accruing an additional penalty at a rate of 4% per year on the outstanding amount.

This penalty accrues daily until you pay the tax in full.

Example

You owe £3,000 and miss the payment deadline.

Day 15: Still unpaid. No penalty yet.
Day 16: First penalty applies: 2% of £3,000 = £60
Day 30: Additional penalty: 2% of the amount still unpaid. If you still owe the full £3,000, that's another £60. Total penalty so far: £120 (4%)
Day 31 onwards: Second penalty starts accruing at 4% per year on the outstanding amount (approximately £0.33 per day on a £3,000 debt)

This continues until you pay in full.

Time to Pay arrangements with HMRC

If you contact HMRC and agree a Time to Pay arrangement before day 15, no penalty applies (though interest continues to accrue).

If you agree a Time to Pay arrangement between day 16 and day 30, the first penalty is reduced to 2% (instead of 4%).

If you agree a Time to Pay arrangement after day 30, the second penalty stops accruing from the day you contact HMRC (as long as you honour the agreement).

Time to Pay arrangements let you spread your tax bill over several months. To set one up, contact HMRC as soon as you know you'll struggle to pay on time.

What to do if you can't pay on time

If you can't pay your tax bill by the deadline:

Contact HMRC immediately - Don't wait. The sooner you contact them, the more options you have.
Ask about Time to Pay - HMRC may let you spread payments over several months (usually up to 12 months).
Continue paying what you can - Any payment reduces the amount on which interest and penalties accrue.

You can set up a Time to Pay arrangement:

Online through your HMRC online account (if you owe less than £30,000)
By calling HMRC's Self Assessment payment helpline on 0300 200 3822

Important

Don't ignore a tax bill you can't pay. HMRC is more likely to help if you contact them proactively rather than waiting for them to chase you.

Avoiding late payment penalties

To avoid late payment penalties:

Pay early - Don't leave it until the deadline day. Payment processing can take time.
Set up Direct Debit - HMRC will collect payment automatically on or just after the deadline.
Set calendar reminders - Mark the payment dates (31 January and 31 July) well in advance.
Plan ahead - Set aside money throughout the year to cover your tax bill.
Reduce payments on account - If your income has dropped significantly, you can ask HMRC to reduce your payments on account to avoid overpaying.

Penalty appeals

You can appeal a late payment penalty if you have a reasonable excuse for missing the deadline.

Reasonable excuses might include:

Serious illness or bereavement
System failures at HMRC or your bank
Circumstances genuinely beyond your control

HMRC will consider your circumstances. If they don't accept your excuse, you can appeal to the tax tribunal.

"I didn't know the deadline" or "I forgot" are not considered reasonable excuses.

HMRC's light-touch approach in the first year

HMRC has confirmed it will take a light-touch approach to late payment penalties in the first year of Making Tax Digital.

In the first year, HMRC won't charge the first 2% penalty until day 30 (instead of day 16). This gives you 30 days instead of 15 days to pay or contact HMRC before penalties apply.

After the first year, the standard penalty timeline (penalties from day 16) will apply.

For more information, see HMRC's guidance on late payment penalties.