What Are the Penalties for Late Tax Payments?

While it’s no one’s favourite activity, paying taxes on time is a legal obligation for individuals and businesses in the UK. Failing to meet the deadlines can mean steep penalties, mounting interest charges, and extra attention from HMRC, even if your liability is small.

Currently, any outstanding tax for the 2023/24 tax year needs to be paid by 31st January 2025. After this date, you’ll start incurring interest.

In this article we’ll look at what happens when you pay your tax late, how penalties are calculated, and share some practical advice to help make sure you make your deadlines. You’ll also learn how financing your tax payments with a tax loan can smooth the process.

What are the penalties for late tax payments?

HMRC enforces penalties and interest on late tax payments, which vary depending on the type of tax owed, the duration of the delay, and whether the delay was intentional.

As outlined in the recent budget, the amount of interest charged on unpaid tax liabilities is scheduled to increase by 1.5 percentage points to the Bank of England Base Rate plus 4 percentage points. 

At the moment, late payment interest is charged at the Bank Rate plus 2.5 percentage points, but the new rate will kick in from April 2025.

Penalties for different types of tax

1. Self-Assessment Income Tax

• 1 Day Late: Fixed penalty of £100, regardless of the tax owed.
• 3 Months Late: £10 daily penalty, up to a maximum of £900.
• 6 Months Late: £300 or 5% of the unpaid tax, whichever is greater.
• 12 Months Late: A further £300 or 5%, with higher penalties for deliberate concealment​.

2. Corporation Tax

• Initial Penalty: £100 if the company tax return (CT600) is late.
• 3 Months Late: An additional £100 penalty.
• 6 Months Late: HMRC will estimate the tax due and apply a penalty of 10% of the unpaid tax.
• 12 Months Late: Another 10% of the outstanding amount.
• Repeated late submissions increase the initial £100 penalty to £500 each time​​.

3. VAT

The VAT late payment penalty system introduced in 2023 imposes:

• 16–30 Days Late: A 2% penalty on the outstanding balance.
• 31 Days or More: Daily penalties accrue at 4% per annum until payment is made​​.

4. Capital Gains Tax

• Interest is currently charged at 2.5% above the Bank of England base rate.
• Additional penalties follow the same timeline as self-assessment taxes​​.

HMRC collected a record £346 million in late payment interest in the year to October 2023, more than double the previous year. By 2025, HMRC is projected to rake in over £500 million annually due to higher interest rates and stricter enforcement​.

Increased automation has led to more penalties being issued. However, 70% more penalties were overturned on appeal in 2023/24 due to delays and service issues at HMRC, such as long call wait times during the self-assessment deadline​​.

How to avoid penalties for late tax payments

1. File tax returns on time

The simplest way to avoid penalties is to file your returns before the deadline. Key dates include:

• Self-Assessment: 31 January for online returns.
• Corporation Tax: Within 12 months of the end of the accounting period​​.

2. Use Time-to-Pay Arrangements (TTP)

If you cannot pay on time, contact HMRC as soon as possible to set up a Time-to-Pay arrangement. This plan allows you to spread your tax payments over several months. While interest applies, this option prevents additional penalties​​.

3. Automate tax deadlines

Set up reminders or use accounting software to track tax deadlines and ensure payments are made on time, or work with an accountant to ensure compliance.

4. Keep accurate records

The more up-to-date your information, the faster it is to prepare and plan for tax and reduce errors or surprises that could delay filing or payments. Ensure all receipts, invoices, and accounts are up-to-date.

How tax financing can help avoid penalties

Tax obligations often clash with other financial pressures, particularly for businesses with seasonal revenue or unexpected expenses. Financing can help bridge this gap, ensuring tax payments are made on time while maintaining cash flow.

iwoca Flexi-Loan for Tax Payments

• Borrow up to £1,000,000 with flexible terms.
• Rapid approval: Funds are available quickly to meet urgent tax deadlines.
• Flexible borrowing: Only pay interest on the amount you draw down, and you can top up once you’ve paid back a certain amount of your loan. 
• No early repayment fees: Repay or overpay as soon as your financial situation improves, without extra charges.

By using a Flexi-Loan, businesses can avoid late payment penalties and keep cash flow moving.

What to do if you receive a penalty

1. Check the accuracy of the penalty

Review the penalty notice to ensure it is accurate. Errors can occur, especially if payments have been made recently or appeals are pending.

2. Appeal the penalty

If you believe the penalty is unfair, you can appeal to HMRC. Valid reasons include:

• Bereavement.
• Serious illness.
• HMRC service issues, such as online system failures​.

Appeals can be submitted online or via the SA370 form for self-assessment penalties.

3. Pay what you can

Even if you can’t pay the full amount, partial payments reduce interest and penalties on the remaining balance.

Late tax penalties FAQs

1. How much are penalties for late corporation tax payments?

The initial penalty is £100, but this increases significantly for delays over 6 and 12 months. Repeated offences incur higher penalties​​.

2. What are reasonable excuses for late payments?

Reasonable excuses include, severe illness or hospitalisation, natural disasters affecting your records or ability to file or HMRC service disruptions​​.

3. Can I reduce interest on late payments?

Interest charges cannot be appealed but can be minimised by paying outstanding amounts as soon as possible​​.

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