In line with consultants, the figures spotlight how tough many individuals discover the UK tax system.
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Greater than 1.3 million taxpayers had been charged late fee curiosity by HMRC for the most recent tax yr, new figures reveal. A freedom of data request by funding platform AJ Bell reveals 1,370,000 individuals paid curiosity on late self-assessment tax funds for the 2023/24 tax yr.
Up to now the Authorities has collected £137.5million in late fee curiosity from these taxpayers. The common curiosity invoice was £100.37, which means many individuals paid greater than £100 on prime of the tax they already owed. Nevertheless, consultants warn the ultimate complete for the yr is prone to rise additional.
The figures solely depend taxpayers as soon as the curiosity or penalties have been absolutely paid, which means the overall for 2023/24 may improve considerably as extra funds are processed. Knowledge from earlier years reveals how these totals can change over time. Revised figures for 2022/23 present a document £200.1million was collected in late fee curiosity, unfold throughout 1.62 million taxpayers.
Greater than 1.3 million taxpayers had been charged late fee curiosity by HMRC for the most recent tax yr (Picture: Getty)
Earlier years additionally noticed giant sums collected by HMRC. In 2021/22, round 1.83 million taxpayers paid late curiosity, with the overall quantity reaching £194.1million. For 2020/21, roughly 1.79 million individuals paid £144.2million, whereas 2019/20 noticed £113.1million collected from 1.43 million taxpayers.
Charlene Younger, senior pensions and financial savings professional at AJ Bell, stated the figures spotlight how tough many individuals discover the UK tax system.
She stated: “These newest figures counsel that taxpayers nonetheless face problem navigating the UK’s complicated tax system and HMRC are cashing in consequently. Hundreds of thousands have paid late fee curiosity in latest tax years, regardless of strikes to loosen up the foundations on who should file a self-assessment return.
“Tax-free allowances for dividends have been repeatedly slashed since 2018, with the present allowance standing at simply £500 in comparison with its unique £5,000 degree. The charges of earnings tax on dividends additionally went up in 2022 and can bounce once more for fundamental and better price taxpayers subsequent tax yr. It’s an identical story relating to income on investments exterior of ISAs and pensions, with a decrease capital features tax allowance and up to date hikes to the charges of tax due.
“This good storm drags smaller traders into calculating and paying these taxes for the primary time but additionally means payments for present taxpayers have jumped. Taxpayers can turn into unstuck in the event that they discover the programs and deadlines tough to navigate, and others probably face greater curiosity and penalties relating to errors and never paying on time.”
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Rates of interest charged by HMRC have additionally elevated.
Ms Younger defined: “Late fee curiosity was hiked from April 6, 2025 to base price plus 4%, when it had beforehand been base price plus 2.5%. Curiosity accrues day by day on the unique quantity owed, and though charges have been coming down, the trajectory of base price cuts is now wanting extra unsure, suggesting that people might need to foot a fair greater curiosity invoice going ahead.”
Main adjustments to the self-assessment system are additionally on the way in which. The Authorities plans to broaden Making Tax Digital (MTD) for earnings tax self-assessment, which HMRC describes as the largest change to earnings tax reporting in many years.
Ms Younger stated: “The federal government hopes the transfer to MTD for earnings tax self-assessment will shut the tax hole, with quarterly reporting bettering accuracy, and aiming to lift £780million by 2028-29. Nevertheless, for landlords and small enterprise house owners it will undoubtedly create further admin, and a brand new regime of penalty factors to become familiar with. Partnerships and included companies might be exempt from the preliminary earnings tax roll out, though many will already be beneath the MTD regime for VAT.”
From April 6, 2026, the foundations will start to use to sole merchants and landlords incomes greater than £50,000.
Ms Younger defined: “From April 6, 2026, sole merchants and landlords with a qualifying earnings over £50,000 should submit quarterly on-line returns, with the qualifying threshold progressively reducing to £30,000 from April 2027 and £20,000 the yr after. What’s extra, taxpayers falling into MTD (or their brokers) should use and pay for appropriate software program to file, and can not have the ability to depend on HMRC’s personal free system.”
The adjustments will have an effect on tens of millions of taxpayers.
Ms Younger stated: “In line with AccountingWEB, a staggering 97% of unrepresented taxpayers used HMRC’s system to file self-assessment returns earlier than the January 31, 2025 deadline for 2023/24 – equating to 4.5 million returns. Whereas not all of those might be in scope for MTD, it reveals an enormous change required from April 6, 2026 for these topic to the brand new guidelines.”
Rates of interest charged by HMRC have additionally elevated (Picture: Getty)
HMRC says there might be a brief transition interval when the brand new system begins, with Ms Younger including: “HMRC is giving taxpayers a while to regulate to the adjustments. They won’t apply penalty factors for late quarterly updates for the primary yr, however penalty factors will nonetheless apply for late finish of yr returns. The federal government has additionally confirmed that the brand new penalty regime will apply to all earnings tax self-assessment taxpayers from April 6, 2027, even when they’re not already as a result of be a part of the system. That is to make sure that there should not two separate programs operating alongside one another.”
The penalties themselves may also change beneath the brand new system.
Ms Younger stated: “Below the present self-assessment submitting system, taxpayers face a penalty for lacking the deadlines for submitting a return or paying a invoice. Penalties begin at an preliminary £100, with added fines the longer the return goes unfiled. For unpaid tax, curiosity applies from the date the fee was due, plus a 5% nice after 30 days, with further penalties after six and twelve months.
“Below MTD, late fee penalties for earnings taxpayers might be 3% of the tax excellent the place tax is overdue by 15 days, an extra 3% the place tax is overdue by 30 days, and an annual price of 10% per yr on the excellent steadiness the place tax is overdue by 31 days or extra.”
She warned the adjustments may end in greater prices for some taxpayers.
Ms Younger stated: “Late submissions of quarterly updates might be topic to penalty factors after April 6, 2027, with one penalty level for every late submission, and taxpayers might be given a penalty factors threshold of 4 factors.
“Though the penalty factors system may show fairer relating to errors, and the one yr delicate touchdown might present some aid, people may face greater payments beneath MTD for late fee of cash owed because of the new penalties. A self-employed individual owing £25,000 earnings tax will seemingly discover themselves owing round £26,900 after 4 months with tax or curiosity. Below the brand new MTD guidelines this might be near £28,000.
“Whereas the adjustments might assist HMRC to clamp down on unpaid tax, it stays to be seen how simply enterprise house owners are capable of adapt, and whether or not HMRC will find yourself financially benefiting from low ranges of engagement with the brand new system.”
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