More than 1.3 million taxpayers were charged late payment interest by HMRC for the latest tax year, new figures reveal. A freedom of information request by investment platform AJ Bell shows 1,370,000 people paid interest on late self-assessment tax payments for the 2023/24 tax year.
So far the Government has collected £137.5million in late payment interest from those taxpayers. The average interest bill was £100.37, meaning many people paid more than £100 on top of the tax they already owed. However, experts warn the final total for the year is likely to rise further.
The figures only count taxpayers once the interest or penalties have been fully paid, meaning the total for 2023/24 could increase significantly as more payments are processed. Data from previous years shows how these totals can change over time. Revised figures for 2022/23 show a record £200.1million was collected in late payment interest, spread across 1.62 million taxpayers.
Earlier years also saw large sums collected by HMRC. In 2021/22, around 1.83 million taxpayers paid late interest, with the total amount reaching £194.1million. For 2020/21, roughly 1.79 million people paid £144.2million, while 2019/20 saw £113.1million collected from 1.43 million taxpayers.
Charlene Young, senior pensions and savings expert at AJ Bell, said the figures highlight how difficult many people find the UK tax system.
She said: “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.”
Interest rates charged by HMRC have also increased.
Ms Young explained: “Late payment interest was hiked from April 6, 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.”
Major changes to the self-assessment system are also on the way. The Government plans to expand Making Tax Digital (MTD) for income tax self-assessment, which HMRC describes as the biggest change to income tax reporting in decades.
Ms Young said: “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 £780million 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 April 6, 2026, the rules will begin to apply to sole traders and landlords earning more than £50,000.
Ms Young explained: “From April 6, 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.”
The changes will affect millions of taxpayers.
Ms Young said: “According to AccountingWEB, a staggering 97% of unrepresented taxpayers used HMRC’s system to file self-assessment returns before the January 31, 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 April 6, 2026 for those subject to the new rules.”
HMRC says there will be a short transition period when the new system begins, with Ms Young adding: “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 April 6, 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.”
The penalties themselves will also change under the new system.
Ms Young said: “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.”
She warned the changes could result in higher costs for some taxpayers.
Ms Young said: “Late submissions of quarterly updates will be subject to penalty points after April 6, 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.”