If you’re a VAT-registered business, you’re probably aware of the HMRC late payment penalties and interest-rates. But what you may not know is they have recently made some changes to their rules that took effect as of April 2025.
These significant changes to their tax collection and compliance regulation methods could mean BIG changes are required for VAT-registered businesses, so it’s important to get familiar with what’s new before it’s too late.
The adjustments that have been made as part of a wider effort to address the estimated £40 billion gap between what is owed in taxes, and what is actually collected.
Below is everything you need to know about what’s changed with HMRC Late Payment Penalties and Interest-Rates…
Increased Compliance Officers for HMRC Late Payments
It’s safe to say HMRC have put some time and budget into hiring, with a 10% increase in the number of Compliance Officers now in effect. This takes the total number of officers to 5,500.
Increased Debt Management Team
On the subject of hiring, they have also introduced an additional 600 debt management staff to pursue overdue payments, again looking to close that gap on unpaid taxes.
Higher HMRC Late Payment Interest Rates
HMRC has raised the interest rate on unpaid tax liabilities by 1.5%. This change shifts the rate, from the Bank of England base rate plus 2.5%, to the base rate plus 4%. For example, with our current base rate of 4.25%, the late payment interest rises to 8.25%. This increase will affect multiple tax types, including Income Tax, VAT, Capital Gains Tax, Inheritance Tax, and National Insurance Contributions.
It’s worth noting that this late payment interest still accrues when a “Time To Pay” is in effect too.
Stricter HMRC Late Payment Penalties
The government has implemented tougher penalties for late tax payments, significantly impacting VAT and Making Tax Digital (MTD) for Income Tax Self-Assessment taxpayers. The new penalties will be:
- 3% of the owed tax if payment is 15 days late (up from 2%).
- An additional 3% penalty if payment is 30 days late (up from 2%).
- An penalty of 10% for payments that are 31 days+ late (up from 4%).
Direct Debt Recovery Re-introduced
The government is also bringing back the “Direct Recovery of Debts” (DRD) policy, which allows HMRC to deduct unpaid taxes directly from the bank accounts of individuals and businesses that can afford to pay but have chosen not to. This action aims to reinforce compliance and ensure tax obligations are fulfilled in a timely manner.
Needless to say, it’s never been more important to pay your taxes promptly and keep accurate financial records of these payments. It goes without saying that these new measures are likely to create additional financial strain for some businesses, particularly those already grappling with cash flow. The combination of increased interest rates, heightened penalties and direct debt recovery schemes certainly signifies the start of a new way of thinking about tax.
How Moorgate Finance can help with HMRC Late Payments Changes: VAT Loans
If you’re struggling with your tax bills, and worried about the changes to HMRC Late Payments, a VAT Loan could provide the perfect solution to ensuring your tax bills are affordable, and paid on time, avoiding unnecessary penalties or interest-rates with HMRC. A tax loan could help you to:
- Keep a steady cash flow whilst still paying your bills on time.
- Avoid hefty interest and penalties from HRMC for late payments.
- Offer flexible repayment terms that work for your business.
- Provide quick access to funds.
Plus, a VAT loan doesn’t require any Director’s Guarantees for VAT bills under £150,000.
If you’d like to explore VAT loans further in time for your next bill, don’t hesitate to reach out to the team. Call us on 01908 92 62 62 or complete our Apply Now form.
