Paying Tax to HMRC – Beware of the False Economy of Late PaymentPosted: May 9, 2025

UPDATED - HMRC CHARGES HAVE NOW BEEN REDUCED IN LINE WITH THE RECENT BASE RATE CHANGE, AS WE PREDICTED IN THIS ARTICLE. THE NEW RATE IS 8.25%.

There is no avoiding the fact that the HMRC late payment interest rate is currently very high. That could represent a significant hike in the amount of the payment due if you pay late.

When a business is struggling with cash flow pressure, directors sometimes use the gambit of delaying tax payments to HM Revenue & Customs (HMRC) to free up some funds. It might seem like a temporary solution to a short-term problem, but it’s a tactic that can quickly backfire.

The cost of late payment to HMRC can be substantial

The reason HMRC charges interest on late payments is, of course, to encourage timely compliance. They see it as a move to compensate the Exchequer for the delay in receiving funds. This rate moves in line with the Bank of England base rate, plus an additional percentage above that. As I am writing this, the base rate has just been reduced to 4.25% from 4.5%. So, all things being equal, the current rate of 8.5% may drop.

However, with a drop of .25% or not, it is still a very big reason not to miss those payments to HMRC.

Why you should avoid delaying your tax payments

We see a lot of directors who have made the mistake of seeing HMRC in the wrong light. They may seem like a faceless creditor that can be paid later without immediate consequence, but they are not going to go away, and that tactic of paying later could really cost you. HMRC has very strong enforcement powers, and the financial implications of late payment are becoming increasingly severe.

Staying on top of your tax deadlines is vital because:

• Interest is Non-Negotiable: You cannot appeal against late payment interest simply because you’re experiencing financial difficulties. HMRC applies the interest automatically.
• Debt Grows Quickly: At an annual rate of 8.5%, debts can accumulate rapidly.
• Impact on Credit: Allowing tax debt to grow can potentially impact your ability to access credit or other support, particularly if HMRC initiates enforcement action.

Sometimes, cashflow issues do happen, though, and it’s not inconceivable that you may have no choice but to delay a payment. If you do, make it your aim to get back on track as soon as possible.

There are very limited grounds for disputing HMRC's late charges

To be clear, you cannot appeal against the interest charge itself, but HMRC will, in theory at least, consider objections in some highly specific circumstances such as:

• Mistakes by HMRC: If HMRC has made an error that led to the delay in payment, they may consider reducing the interest.
• Unreasonable Delay by HMRC: If there has been a delay in processing or decision-making on their side that contributed to the interest accrued.
• Disputes Over the Effective Date of Payment: If there is a disagreement over when the payment was deemed to have been received by HMRC.

Note the word ‘may’ in this list, HMRC are tough, and these exceptions are narrow in scope. They will require conclusive and clear evidence, so attempting to use them without cause is unlikely to succeed.

Take some sensible steps to manage HMRC payments

Given the increased cost of late payment, it is more important than ever to plan ahead:

• Budget for taxes as a separate line item in your cash flow forecasts.
• Set aside funds regularly—especially for VAT, PAYE, and Corporation Tax, which can accumulate quickly.
• Prioritise tax payments over less critical spending to minimise compounding costs.
• Pay what you can, when you can. Partial payments will help reduce the interest charged and show HMRC you are willing to pay.

Remember, we are talking about an unpaid bill to HMRC here, and that is a serious problem. When you are in a difficult financial situation, the business will need every penny. Don’t underestimate how much 8.5% can matter financially in a tight spot. Not to mention the stress it will cause, having to deal with HMRC as they try to collect the money you owe them.

What to Do If You Can’t Pay in Full

If you are struggling to pay a tax bill, the worst option is to ignore it.  HMRC encourages taxpayers to engage with them early if they have an issue with payment, and I couldn’t agree more. If you talk to them, they may agree to a Time to Pay (TTP) arrangement. A TTP allows taxpayers to pay their liabilities in instalments over an agreed period however, there is no guarantee they will do this.

To increase your chances of reaching a successful agreement:

• Contact HMRC as soon as possible and preferably before the payment deadline.
• Be prepared to share financial information, including income, outgoings, and assets.
• Offer a realistic and sustainable payment proposal. Don’t be tempted to overpromise, though!
• If you think you will need to include HMRC in a potential insolvency scenario, contact us for advice immediately.

While negotiating a TTP arrangement does not stop interest from accruing, it can prevent further penalties and enforcement action. In the end, though, that tax bill will need to be paid.

Not paying HMRC is a false economy

Delaying tax payments might seem to provide momentary relief, but in the end, both financial and administrative costs are more than likely going to make it a false economy. With HMRC’s late payment interest now at 8.5% (or perhaps 8.25% soon), those unpaid tax liabilities will become increasingly expensive the longer they remain outstanding.

The sensible options are always to plan ahead for your payment, seek support when you need it, and take proactive steps to avoid unnecessary costs. When the cashflow stalls and the money dries up, sound financial planning and early engagement with HMRC can make all the difference.

Dealing with things is more important if you think you have an insolvency issue. Whether that is because of money you owe to HMRC or any other debts, don’t delay. Taking action will help resolve the problem; allowing it to grow will only make it worse.

There is more help here on dealing with HMRC in our advice for directors section, along with the option to contact us (first consultation is free) if you think you are facing insolvency or other financial issues we can help with.

Back