Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment she has made of the affordability of HMRC’s policy requiring people with Self-Assessment liabilities above £3,000 to enter into time to pay arrangements subject to interest; and whether she has considered reviewing the interest rate applied to those arrangements to ensure that individuals experiencing loss of income or financial hardship are not disproportionately affected.

HMRC provides support to taxpayers who are unable to pay their tax liabilities in full through time to pay arrangements.

Taxpayers should contact HMRC as soon as possible so we can support them by working to negotiate time to pay what they owe based on their income and expenditure, designed to help customers pay what they owe in smaller, sustainable instalments. They are a longstanding option available to businesses and individuals who are in temporary financial difficulty and can be amended if the customers’ circumstances change.

Late payment interest is charged whenever tax is paid late and continues to accrue on amounts not paid on time, even if those amounts are included in a time to pay arrangement.

HMRC’s interest rates are set by statutory instrument. It is open to us to alter the rates, and we keep this under review. The rate balances the need to encourage payment, ensure fairness for those who do pay on time, the cost to the public purse of delayed payment, and affordability. Time to pay, and the guidance offered by HMRC advisers, is the mechanism by which additional support is given where needed.

If the rate of late payment interest is too low, HMRC may become the lender of first preference to some customers, impairing our ability to efficiently collect taxes and fund public services. HMRC’s debt balance grew significantly during the pandemic, and there is a risk of anything that encourages taxpayers to delay payment will further increase this. HMRC’s interest rate was linked to the Base of England base rate (BOE) in 2009 to introduce an element of independence in the rate setting. HMRC late payment rate is set in legislation as BOE +4% from April 2025.