late payment

How the interest would change if you extended your Time To Pay plan to 12 months instead of 6 (so you can compare total cost vs affordability)

admin

Here’s the 12-month version of your Self Assessment Time to Pay plan so you can see how the interest cost changes compared with the 6-month plan

 Example: 12-Month Time to Pay Interest Calculation

Scenario

ItemDetails
Tax owed£1,500 (balancing payment 2024/25)
Due date31 January 2026
TTP agreed12 monthly instalments of £125 starting 28 Feb 2026
HMRC interest rate7.75 % per year (as of early 2026)

 HMRC’s Method

Interest is simple daily interest on the outstanding balance until each payment date:

{Interest} = {Balance} × 7.75% × {{Days}}{365}

Each payment reduces the balance, so later months accrue less interest.

Month-by-Month Breakdown

MonthPayment dateBalance before paymentDays chargedInterest (£)New balance
Feb 202628 Feb£1,50028£8.91£1,375
Mar31 Mar£1,37531£9.08£1,250
Apr30 Apr£1,25030£7.97£1,125
May31 May£1,12531£7.38£1,000
Jun30 Jun£1,00030£6.37£875
Jul31 Jul£87531£5.76£750
Aug31 Aug£75031£4.93£625
Sep30 Sep£62530£3.98£500
Oct31 Oct£50031£3.29£375
Nov30 Nov£37530£2.39£250
Dec31 Dec£25031£1.64£125
Jan 202731 Jan£12531£0.82£0

Total Interest

£8.91 + £9.08 + £7.97 + £7.38 + £6.37 + £5.76 + £4.93 + £3.98 + £3.29 + £2.39 + £1.64 + £0.82 = \{£62.52}

Total interest = £62.52

So the overall cost is:

[£1,500 + £62.52 = £1,562.52]

Comparison: 6 Months vs 12 Months

Plan lengthMonthly paymentTotal interestTotal costDifference
6 months£250£33£1,533–
12 months£125£63£1,563+ £30 interest for 6 extra months

 Takeaway

  • Extending from 6 to 12 months roughly doubles the interest because the balance is outstanding for longer.
  • However, it halves your monthly cash outflow, which may make payments manageable.
  • HMRC accepts longer plans if you can demonstrate affordability — they prefer steady, on-time payments to none at all.

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.