Self-Assessment

What penalties apply if I miss balancing payments or payments on account?

admin

Let’s build on the same example and show exactly how HMRC charges interest and penalties if you pay late under Self Assessment

Example: Late Payment Interest & Penalties under Self Assessment

We’ll continue with your 2024/25 example:

Type of paymentDue dateAmount
1st Payment on Account31 Jan 2025£6,000
2nd Payment on Account31 Jul 2025£6,000
Balancing Payment31 Jan 2026£1,500

 Step 1 – Interest for Late Payment

HMRC charges daily interest from the day after payment was due until the day it’s actually paid.

  • Rate: Based on the Bank of England base rate + 2.5% (as of 2025, that’s typically around 7.75% per year, but it can change quarterly).

Example:
If you paid your £6,000 July instalment 60 days late and the rate was 7.75%:

[
Interest = £6,000 × 7.75% × \frac{60}{365} = £76.16
]

You’d owe £6,076.16 total.

Step 2 – Late Payment Penalties

Since 2010–11, HMRC applies Late Payment Penalties under Schedule 56 FA 2009 — these are separate from interest.

They apply to any unpaid Self Assessment tax, including balancing payments and payments on account.

Days LatePenalty % of tax unpaid
30 days late5%
6 months lateAdditional 5%
12 months lateFurther 5%

Example:
You didn’t pay your £1,500 balancing payment due on 31 January 2026 until 15 August 2026 — that’s 197 days late.

→ Penalty timeline:

  • After 30 days (2 March 2026): 5% × £1,500 = £75
  • After 6 months (31 July 2026): another 5% × £1,500 = £75
  • Total penalty by payment date = £150
  • Plus interest for ~197 days (~£63 at 7.75%)

So you’d owe £1,713 total (£1,500 + £150 + £63 interest).

Step 3 – Summary

ComponentDescriptionAmount
TaxBalancing payment due£1,500
Interest197 days @ 7.75%£63
Penalties2 × 5%£150
Total payable£1,713

Key Tips

  • Always pay by 31 January and 31 July to avoid both interest and penalties.
  • You can make advance payments or set up a Budget Payment Plan through your HMRC online account.
  • If you can’t pay in full, contact HMRC for a Time to Pay arrangement — this pauses further penalties, though interest still runs.

A numerical example of how self-assessment liability is calculated

admin

Here’s a numerical example showing how HMRC calculates your expected liability under Self Assessment

 Example: Calculating Expected Liability

Background

  • Your total tax and Class 4 National Insurance liability for 2023/24 (after PAYE and other credits) = £12,000.
  • You are self-employed and still trading in 2024/25, so HMRC assumes your next year’s liability will be roughly the same.

Step 1 – Work out the payments on account

Expected liability for 2024/25 is based on 100% of the previous year’s liability, split into two instalments:

[£12,000 × 50% = £6,000 \text{ per instalment}]

  • 1st Payment on Account (POA) – due 31 January 2025 = £6,000
  • 2nd Payment on Account (POA) – due 31 July 2025 = £6,000

You will therefore have paid £12,000 on account by 31 July 2025.

Step 2 – File the 2024/25 tax return

Suppose your actual tax liability for 2024/25 turns out to be £13,500.

Step 3 – Work out the balancing payment

[Actual liability (£13,500)} − \text{Payments on account (£12,000)} = £1,500]

That £1,500 is your balancing payment, due 31 January 2026.

Step 4 – Calculate next year’s payments on account

HMRC will now base your 2025/26 expected liability on this latest figure (£13,500), unless you claim to reduce it.

[£13,500 × 50% = £6,750 \text{ per instalment}]

So your next two payments on account will each be £6,750, due 31 January 2026 and 31 July 2026.

Step 5 – If your income drops

If you know your 2025/26 profits will be lower, you can apply to reduce your payments on account.
For example, if you expect your liability to fall to £10,000, you can claim to reduce each POA to:

[£10,000 × 50% = £5,000]

 If you reduce too much and end up owing more, HMRC will charge interest on the shortfall.