Britain’s taxpayers are facing a sharp increase in the cost of falling behind with HMRC payments, with late payment interest now more than double the Bank of England’s base rate.
Leading audit, tax and business advisory firm Blick Rothenberg has warned that taxpayers who miss upcoming deadlines could find themselves hit with one of the highest government-imposed interest charges in years.
The warning comes as HMRC’s late payment interest rate rises to 7.75 per cent — a significant jump from the previous system of base rate plus 2.5 per cent.
Since April 2025, HMRC increased the margin applied to unpaid tax debts to base rate plus 4 per cent, meaning taxpayers now face a far steeper financial penalty for delayed payments.
With the Bank of England base rate currently at 3.75 per cent, unpaid tax liabilities are accumulating interest at a rate more than twice the cost of official borrowing.
The July deadline that could trigger a costly tax shock
Tom Goddard, Assistant Manager at Blick Rothenberg, warned that taxpayers required to make their second payment on account for the 2025/26 tax year must settle their bills by 31 July or face the new 7.75 per cent charge.
“Those who initially owed £800 for their second payment on account would find HMRC expecting £862 if they don’t pay within a year,” he said.
Payments on account are advance instalments towards a taxpayer’s future tax bill, designed to spread payments across two instalments rather than requiring one large payment.
They typically affect people with significant income outside PAYE employment, including:
- self-employed workers;
- landlords receiving rental income;
- individuals with substantial investment income.
Taxpayers generally do not need to make payments on account if their previous year’s income tax liability was below £1,000 or if more than 80 per cent of their tax has already been collected at source, usually through PAYE.
HMRC scrutiny risk grows
The financial consequences of missing a deadline extend beyond interest charges.
Blick Rothenberg warned that failing to meet payment obligations could increase the likelihood of HMRC examining a taxpayer’s affairs more closely.
“As more and more individuals are having their financial affairs looked at more closely by HMRC through enquiries and investigations, missing a payment on account deadline could be one of the reasons HMRC may decide to scrutinise a taxpayer’s return in more detail,” Goddard said.
The tax authority has invested heavily in enforcement activity as it attempts to recover billions of pounds in unpaid tax liabilities.
For some taxpayers, a missed payment could become an additional red flag alongside inconsistencies or errors in tax returns.
Warning over reduced payments claims
Taxpayers whose income has fallen may be able to reduce their payments on account to reflect lower expected liabilities.
However, advisers warned that reducing payments too aggressively could backfire.
If HMRC determines that payments were reduced too far and tax was underpaid, taxpayers could face additional interest charges and possible penalties.
Blick Rothenberg said taxpayers who reduced their payments based on estimates should now review whether those calculations remain accurate following the end of the 2024/25 tax year.
Submitting tax returns early could also help taxpayers avoid unnecessary overpayments or unexpected bills, allowing payments to be calculated more accurately before deadlines arrive.
New digital tax rules add pressure
The July deadline also arrives just days before another major compliance requirement takes effect for thousands of taxpayers.
Making Tax Digital (MTD) for Income Tax became mandatory from 6 April 2026 for sole traders and landlords whose combined gross income from self-employment and property exceeded £50,000 on their 2024/25 tax return.
Those affected must now:
- maintain digital financial records;
- use compatible software;
- submit quarterly income and expense updates to HMRC.
The first quarterly update is due by 7 August 2026, covering the period from 6 April to 5 July 2026.
HMRC has announced a “soft landing” period, meaning penalty points will not be issued for late quarterly submissions during 2026/27.
However, the relief does not apply to unpaid tax.
Taxpayers who fail to pay liabilities on time will still face interest charges.
A warning for taxpayers under financial pressure
Goddard urged anyone struggling to pay not to ignore HMRC demands.
“Those who are experiencing financial problems should not ignore their payment obligations, but should contact HMRC to talk through their position,” he said.
HMRC may offer payment plans that allow taxpayers experiencing hardship to spread payments over a more manageable period.
But with interest rates elevated and enforcement activity increasing, advisers warned that silence could prove expensive.
For taxpayers already dealing with rising household costs and tighter finances, the message is clear: missing HMRC deadlines is becoming a far more costly mistake.
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