Don’t Get Caught Out! HMRC’s Stricter Penalties Start April 2025

Introduction

HMRC’s stricter penalties start April 2025, marking a major crackdown on tax non-compliance in the UK. Not only has HM Revenue & Customs (HMRC) significantly increased fines for late payments, but it has also raised interest rates on overdue tax and tightened penalties for late filings—all aimed at closing the £36 billion tax gap.

To help you navigate these changes, this guide breaks down:

New penalty structures (vs. previous rules)
How interest rates have risen
Key deadlines for self-assessment and VAT
How to appeal penalties if unfairly charged

(Need urgent help? Contact Plan A Financials for expert advice.)

1. HMRC’s Stricter Penalties for Late Payment

One of the most notable changes is the increase in the severity of penalties for late tax payments, which now impose higher costs on both individuals and businesses failing to meet their tax obligations on time.

Previous Structure (Before April 2025):

Before April 2025, HMRC applied penalties progressively based on the duration of non-payment:

• Making Tax Digital (MTD) Participants:
  • Late payment penalties ranged between 2% and 4% of the outstanding tax amount, depending on how long the tax remained unpaid.
  • HMRC applies additional surcharges after 30 days and again at 6 months of non-payment.
• General Taxpayers:
  • A staged penalty system applied, increasing as time passed:
    • 15 days overdue: A 2% penalty on the unpaid tax.
    • 30 days overdue: A further 2% penalty, totaling 4%.
    • Beyond 6 months: A penalty of 5% of the unpaid tax.
    • Beyond 12 months: An additional 5% surcharge was imposed.

New Structure (Effective April 2025):

Under the new penalty regime, HMRC has made significant increases to the penalties, aiming to encourage timely payments:

• MTD Participants:
  • The penalty range has increased from 3% to 10% of the unpaid tax.
  • The penalty rate escalates more steeply for longer delays:
    • 30 days overdue: A 5% penalty is applied.
    • 6 months overdue: A 7.5% penalty is applied.
    • 12 months overdue: A 10% penalty is applied.
• General Taxpayers:
  • A 10% per annum penalty is now applied to overdue taxes beyond 31 days.
  • The 10% penalty is compounded annually, meaning longer delays result in significantly higher penalty amounts.
  • For instance, a tax liability of £10,000 unpaid for:
    • 6 months would accrue a penalty of £500.
    • 12 months would accrue a penalty of £1,000.
    • 2 years (if still unpaid) would result in a total penalty exceeding £2,100, as interest continues compounding.

These adjustments place a much greater financial burden on taxpayers who fail to meet payment deadlines, emphasizing the importance of timely tax settlements.

Source: Financial Times

2. Interest Rates on Late Payments

In addition to increased penalties, HMRC has raised the interest rates charged on late tax payments:

Previous Rate (Before April 2025):

Bank of England charged an interest rate of base rate plus 2.5%.

New Rate (Effective April 2025):

Interest is now charged at the Bank of England base rate plus 4%.

For example, with a Bank of England base rate of 4.75%, the interest rate on late payments would be 8.75%, equating to approximately 0.024% per day on any outstanding tax. This increase significantly raises the cost of delaying tax payments.

Source: GOV.UK

This means a £10,000 debt accrues £2.40 per day in interest alone.

3. Harsher Penalties for Late Filings (Self-Assessment & VAT)

HMRC’s Stricter Penalties are also applicable to late filing of self-assessment tax and VAT returns:

Previous Penalty (Before April 2025):

• An automatic £100 fine for missing the deadline, with additional penalties accruing over time.
• Additional penalties applied at:
  • 3 months: £10 per day up to £900.
  • 6 months: 5% of tax due or £300, whichever is greater.
  • 12 months: An additional 5% of tax due or £300, whichever is greater.

New Penalty (Effective April 2025):

• The initial £100 fine remains, but daily penalties for continued non-compliance have become stricter.
• At 3 months, the daily penalty has increased to £20 per day (up to £1,800 instead of £900).
• At 6 months, the penalty has increased to 6% of the outstanding tax or £400, whichever is greater.
• At 12 months, the penalty has increased further to 8% of the outstanding tax or £500, whichever is greater.

These changes particularly affect landlords, self-employed individuals, and small businesses participating in HMRC’s Making Tax Digital system. The increase in penalties highlights the importance of filing tax returns on time to avoid accumulating fines.

Source: GOV.UK

Appealing Penalties and Available Reliefs

You can appeal a penalty if you believe HMRC imposed it incorrectly or if you have extenuating circumstances.

• Appeal Process: Contact HMRC within 30 days of the penalty notice, providing evidence to support your claim. You can submit appeals online, by phone, or in writing.
• Special Circumstances: HMRC may reduce or cancel penalties in cases of:
  • Serious illness or bereavement preventing timely payment or filing.
  • HMRC administrative errors leading to incorrect penalties.
  • Exceptional events, such as natural disasters or disruptions beyond the taxpayer’s control.
• Tribunal Review: If your appeal is rejected, you can request an independent review by HMRC. However, if still unsatisfied, you have the right to escalate your appeal to a tax tribunal.
• Reasonable Excuse: HMRC considers “reasonable excuse” claims, such as unforeseen IT failures or postal delays, but requires sufficient proof. Source: GOV.UK

Conclusion

HMRC’s stricter penalties introduced from April 2025 highlight the importance of tax compliance for individuals and businesses. With higher late payment fines, increased interest rates, and stricter penalties on late filings, taxpayers must be proactive in meeting their obligations. By understanding the changes, planning ahead, and seeking professional advice, you can minimize risks and avoid unnecessary financial burdens.

At Plan A Financials Limited, we specialize in helping businesses and individuals navigate the complexities of tax compliance. If you need guidance on filing your returns, managing tax payments, or appealing penalties, we’re here to help.

📞 Call us at: 01277 236 246
✉️ Email us at: info@plan-a.co.uk
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