It is essential to meet this week’s deadline for payments on account as late payment interest rises from 3.5% to 8.25% on late payments.

Blick Rothenberg, senior associate at Tom Goddard, said: ‘From May 2022 HMRC has increased late payment interest from 3.5% to 8.25% as part of their agenda to crack down on people that owe tax. People who owe money for the 2024-25 tax year must pay their bill as soon as possible.’

Payments on account are payments towards an individual’s next tax bill and are paid in two instalments.

For example, if someone was required to pay £10,000 for their second payment on account, but did not pay until 31 December 2025, they would have to pay just under £350 in late payment interest.

 ‘The payments are calculated based on the previous tax year’s income tax liability. If you believe your income levels are lower for 2024-25 than 2023-24, you are able to reduce your payments on account to reflect this. However, if you over reduce and subsequently underpay, HMRC will charge interest and could inflict penalties.

‘Now that the 2024-25 tax year has ended, those who have already made a claim to reduce their payments on account should check whether this was appropriate based on their final income levels and if necessary, adjust their payments, as interest may have been accruing since 31 January 2025.’

This is also an incentive to submit self assessment tax returns early, which HMRC is very keen on as it means tax can be collected earlier.

It also means taxpayers can ensure their July payment is accurate rather than overpay and wait until their tax return has been processed to claim a refund.

Goddard added: ‘Payments on account are not required for those who had an income tax liability of under £1,000 for the 2023-24 tax year, or those who have more than 80% of their tax liability paid at source, usually by PAYE. Capital gains tax (CGT) can also be ignored when considering payments on account.’

The deadline is important for landlords and self employed taxpayers, who can use the twice yearly payment schedule to spread payments.

‘The taxpayers who are likely required to make payments on account are those with high levels of investment income, rental profits or who are self employed,’ warned Goddard.

‘People who are experiencing financial problems and struggling with their tax bill should contact HMRC, as they may offer a payment plan which can help to alleviate some of the financial burden, allowing payments to take place over a more manageable time frame.’

HMRC time to pay (TTP) arrangements can be used if tax bills cannot be paid in a single payment. These can cover all outstanding amounts overdue, including penalties and interest.

It will not be possible to set up a payment plan if HMRC does not think the taxpayer will keep up with the repayments. If HMRC cannot agree a payment plan, the full amount will be payable.

A payment plan can be set up online if the taxpayer has filed their latest tax return, in this instance for tax year 2023-24, owes £30,000 or less, and is within 60 days of the payment deadline. It is not possible to use a TTP if any other payment plans or debts with HMRC are outstanding.