More than 1.3 million taxpayers have been charged interest for failing to do this on time, new figures reveal.

The data shows the Government has already collected £137.5m in late-payment interest for the 2023/24 tax year.

That equates to an average interest charge of just over £100 per person. However, the final total is likely to rise significantly because the figures only include cases where the interest or penalty has already been paid.

Previous years show how the bill can quickly grow. Revised figures for 2022/23 show a record £200.1m was collected from 1.62m taxpayers, with the average charge reaching £123.52.

Experts say the problem reflects the growing complexity of the tax system and the squeeze on allowances that is dragging more people into self-assessment.

Late payment interest on self-assessment

Tax year – Taxpayers charged – Total interest

2021/22 – 1.83m – £194.1m

2022/23 – 1.62m – £200.1m

2023/24 – 1.37m – £137.5m*

*Figures likely to rise as more penalties are paid

The figures also come as HMRC has made penalties tougher. From April 6, 2025, late payment interest was increased to 4% above the Bank of England base rate, up from 2.5% above base rate previously. Interest accrues daily on the tax owed.

Charlene Young, senior pensions and savings expert at AJ Bell, said the figures show taxpayers are still struggling to navigate the rules. She said: “These latest figures suggest that taxpayers still face difficulty navigating the UK’s complex tax system and HMRC are cashing in as a result.

“Millions have paid late payment interest in recent tax years, despite moves to relax the rules on who must file a self-assessment return.Tax-free allowances for dividends have been repeatedly slashed since 2018, with the current allowance standing at just £500 compared to its original £5,000 level.

“The rates of income tax on dividends also went up in 2022 and will jump again for basic and higher rate taxpayers next tax year. It’s a similar story when it comes to profits on investments outside of ISAs and pensions, with a lower capital gains tax allowance and recent hikes to the rates of tax due.”

She added that the squeeze is pulling smaller investors into filing tax returns for the first time.

“This perfect storm drags smaller investors into calculating and paying these taxes for the first time but also means bills for existing taxpayers have jumped.”

Biggest shake-up in decades

A major overhaul of the tax system is also on the horizon. From April 6, 2026, Making Tax Digital (MTD) will require many sole traders and landlords earning more than £50,000 to submit quarterly online tax updates.

The threshold will fall to £30,000 in April 2027 and £20,000 the following year. The Government says the move will modernise the system and help close the tax gap, with officials aiming to raise £780m by 2028-29.

But critics warn it will pile extra admin onto millions of small business owners and landlords.

Ms Young said: “From April 6, 2026, sole traders and landlords with a qualifying income over £50,000 must submit quarterly online returns, with the qualifying threshold gradually decreasing to £30,000 from April 2027 and £20,000 the year after.”

Taxpayers affected will also have to use compatible paid-for software rather than HMRC’s free filing system. According to AccountingWEB, 97% of unrepresented taxpayers used HMRC’s own system to file their return before the January 31 2025 deadline – equivalent to 4.5m returns.

Tougher penalties ahead

Under the current system, taxpayers who miss the filing deadline face an initial £100 fine, with further penalties the longer the return goes unfiled. But the new MTD regime introduces a different structure.

Late payment penalties will be 3% of the outstanding tax after 15 days, another 3% after 30 days, and then 10% per year on the unpaid balance from day 31 onwards.

Late submissions will also trigger a penalty points system, with a fine issued once a taxpayer reaches four points. Ms Young warned that despite the new system being designed to improve compliance, some people could end up paying even more.

“Although the penalty points system could prove fairer when it comes to mistakes, people could face higher bills under MTD for late payment of money owed due to the new penalties.”

She said a self-employed person owing £25,000 in income tax could see their bill rise to around £26,900 after four months under the current system – but close to £28,000 under the new rules.

“While the changes may help HMRC to clamp down on unpaid tax, it remains to be seen how easily business owners are able to adapt, and whether HMRC will end up financially benefiting from low levels of engagement with the new system.”