Late Tax Rules: HMRC Payment Plan Interest Rate

HMRC Payment Plan Interest Rate: What You Need to Know

Falling behind on your tax bill can be stressful, but HMRC offers payment plans to help you manage the situation. These arrangements come with interest charges, and understanding how they work could save you money, hassle, and penalties.

In this guide, we’ll cover the current HMRC payment plan interest rate, what a Time to Pay arrangement is, how to set one up, and what happens if you ignore a tax bill.

What Is the Interest Charged on HMRC Payment Plans?

If you set up a payment plan with HMRC, you’ll be charged interest on the outstanding amount from the due date until the debt is cleared. The rate is variable and is tied to the Bank of England base rate.

As of April 2025, HMRC interest on late payments is 7.75%. This includes the base rate (currently 5.25%) plus an additional 2.5%. The rate applies whether you owe tax on Self Assessment, Corporation Tax, VAT, PAYE or any other HMRC-managed liability.

Interest continues to accrue even if you’re in a Time to Pay arrangement. It’s not waived, but setting up a payment plan can help avoid or reduce additional penalties.

What Is a Time to Pay Arrangement?

A Time to Pay (TTP) arrangement is an official agreement with HMRC that lets you spread the cost of your tax bill over a period of time. It's typically used by people who can’t afford to pay their tax in full when it's due.

This isn’t a free ride. You’ll still pay interest, but it allows you to avoid escalating enforcement action such as debt collectors, court proceedings or asset seizure. TTP is tailored to your situation and depends on how much you owe, your income, and your ability to pay.

What If I Can’t Pay My Self Assessment Tax Bill?

If you can’t pay your Self Assessment tax bill, don’t ignore it. HMRC is more cooperative when you act early.

You can usually set up a payment plan online if you owe less than £30,000, are within 60 days of the payment deadline, and have no other ongoing tax payment plans or debts. If you don’t meet the criteria, you’ll need to speak to HMRC directly.

Failing to act leads to interest charges, late payment penalties, and eventually enforcement action. The later you leave it, the fewer options you’ll have.

Do You Get Interest and Penalties on Late Payment?

Yes, both. HMRC charges interest from the day the payment was due. If payment is over 30 days late, a penalty of 5% of the unpaid tax is added. Additional 5% penalties are applied at 6 months and 12 months late.

For example, if you owed £10,000 and didn’t pay anything for a year, you could face £1,500 in penalties alone, not including interest. Setting up a payment plan quickly can stop penalties from stacking up, even though interest continues.

How to Set Up a Payment Plan with HMRC

If you qualify, you can use HMRC’s online self-service tool. It allows you to create a payment plan without speaking to anyone, as long as you:

• Owe £30,000 or less

• Are within 60 days of the payment deadline

• Have no other HMRC payment plans in place

• Are up to date with your tax returns

If you're outside these criteria, you’ll need to call the HMRC Payment Support Service. HMRC will ask about your income, spending, savings and assets to determine what you can realistically afford.

Once agreed, you make monthly payments by Direct Debit. Missed payments can result in the plan being cancelled, which reactivates penalties and enforcement.

How to Contact HMRC

To set up a Time to Pay arrangement or ask for help, you can call the HMRC Payment Support Service on 0300 200 3835. Lines are open Monday to Friday, 8am to 6pm. Be ready to provide details about your financial situation, including income, regular expenses, savings, and what caused the tax debt.

Alternatively, if you’re already in the Self Assessment system and eligible, you can arrange a plan online by logging into your HMRC account.

How Does HMRC Decide the Payment Plan?

HMRC looks at your individual financial circumstances. They’ll ask for a breakdown of your monthly income and essential expenses—like rent, mortgage, food, utilities, and transport. They’ll also ask about assets and savings.

Their goal is to create a plan you can stick to, not one that sets you up to fail. However, they expect full transparency. If they think you’re withholding information or prioritising other payments unfairly, they can reject or cancel the agreement.

In most cases, HMRC prefers short-term plans (less than 12 months), but longer terms can be agreed if your situation justifies it.

Key Summary

HMRC payment plans can be a lifeline if you're struggling to pay your tax bill. But they aren’t interest-free, and ignoring the situation will only make it worse. Interest charges start from day one, and penalties come in quickly after that. If you think you won’t be able to pay on time, act early, be honest with HMRC, and explore a Time to Pay arrangement before enforcement kicks in.