For many business owners, an HMRC tax bill can come at an inconvenient time, just when cash flow is stretched or when the business is reinvesting profits. But delaying payment? That can be a costly decision. With HMRC’s late payment interest and penalties rising, taking out a business loan to clear your tax liability may be a smarter move than letting the debt spiral.
In this piece, we look at the real costs of not paying HMRC on time, compare them to borrowing costs, and explain why a tax-specific loan from Match Finance could be the best way to preserve your cash flow and avoid hefty charges.
What Are the Costs of Paying HMRC Late?
Interest Rates Are High and Rising
As of August 2025, HMRC’s late payment interest rate is 8.00 %.
In recent years, this rate has increased significantly, for example, from April 2025 it rose to 8.5% (Bank of England base rate + 4%). That means any unpaid taxes accrue daily interest, making outstanding liabilities more expensive the longer they go unfixed.
(More information can be found on the Government Website)
Penalty Charges on Top
HMRC’s penalty regime has also become tougher. For VAT:
- If your payment is 16–30 days late, you may pay a 2% penalty on the amount due.
- If it’s 31+ days late, there’s another charge plus a daily penalty rate (currently ~4% p.a.).
- For other taxes, such as corporation tax, penalty surcharges may apply too — for example, a 10 % surcharge if not paid six months after the due date.
Cumulative Financial Impact
Putting it all together: if you don’t pay HMRC on time, you not only pay the original tax owed — but you also face accumulating interest and penalties. According to some estimates, after just over a month of delay, the additional costs can be very significant as over time, debit can spiral.
Credit & Operational Risks
Beyond cost, there’s risk: if a business repeatedly misses payments, it can damage its reputation, make future lending harder, or even lead to enforcement. HMRC has multiple powers to collect unpaid tax, including debt collection and possibly court action.
What Are the Typical Reasons Businesses Struggle to Pay HMRC?
- Cash-flow timing mismatch: Sales revenue might be tied up in invoices, while tax payments demand cash now.
- Unexpected costs: Staff pay, rising supplier costs or capital investments can unexpectedly eat into tax reserves.
- Rapid growth: Reinvesting profit into growth may leave less liquidity to cover tax.
- Poor forecasting: Underestimating upcoming tax liabilities or not planning for payment dates.
- Late client payments: Especially in B2B, delays from customers can leave you short when tax falls due.
The Case for Using a Business Loan to Pay Tax
Given the high cost of interest and penalties, borrowing to pay HMRC can make financial sense. Here’s why:
1.Lower Cost than HMRC Interest & Penalties
If the interest rate on your business loan is significantly lower than HMRC’s 8 %+ rate, borrowing may reduce the overall cost of financing the tax.
It lets you avoid daily accruing penalties and surcharges that HMRC imposes.
2. Preserve Operational or Growth Capital
Instead of using reserves or diverting cash from growth projects, you can spread the tax payment over a manageable loan repayment schedule.
This helps you maintain liquidity and continue investing in your business.
3.Better Budgeting and Predictability
A business loan typically comes with fixed or predictable monthly repayments.
This can be easier to manage than a tax bill that grows as HMRC’s interest compounds.
4.Avoid Credit Damage
Paying HMRC in full (with a loan) means no defaults or enforcement flags.
This helps protect your business’s creditworthiness and reputation.
Risks to Consider
Of course, borrowing to pay tax is not without risk:
- Interest on the loan: Ensure that your loan interest rate is competitive and that the cost of borrowing doesn’t outweigh the cost of HMRC penalties.
- Repayment burden: Make sure your business can sustain the loan repayments without compromising other essential costs.
- Loan fees: Be aware of arrangement or facility fees when taking out a loan.
- Overborrowing: Avoid taking more than you need, borrow only the amount required to cover the tax bill.
How Match Finance Can Help
At Match Finance, we specialise in tailored funding solutions that help businesses manage tax obligations without disrupting operations:
- VAT Loans — Spread your VAT bill with a loan designed for tax payments.
- Corporation Tax Loans — Borrow to settle your corporation tax liability when it falls due, avoiding surcharges.
- Flexible Terms — We work with you to structure a repayment plan that suits your cash flow.
- Fast Decision Making — We understand tax deadlines; our process is designed to be quick and efficient.
Why a Business Loan Might Be Better Than Waiting
Given HMRC’s rising late payment interest rates and significant penalties, delaying tax payments can quickly become an expensive and risky strategy. By contrast, taking a business loan to pay your HMRC bill can:
- Save you money in the long run
- Avoid spiralling penalties
- Help preserve your working capital
- Protect your credit rating
With the right tax-specific loan in place — like those offered by Match Finance — you can pay what you owe to HMRC on time and keep your business moving forward. If you’re facing a tax bill you’re struggling to pay, it’s worth exploring a loan as a proactive solution.
Get in touch with us today to discuss how we can support your business in managing its tax liabilities effectively.
Resources and Further Reading
HMRC Interest Rates
https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates
ICAEW Update on Late Payment Interest Increases
https://www.icaew.com/insights/tax-news/2025/mar-2025/hmrc-increases-interest-rates-for-tax-paid-late
HMRC Penalty and Interest Harmonisation Guidance
https://www.gov.uk/government/publications/penalties-for-late-payment-and-interest-harmonisation/penalties-for-late-payment-and-interest-harmonisation
VAT Late Payment Penalties Explained
https://uwm.co.uk/vat-late-payment-penalty-and-interest
Late Payment of Corporation Tax Penalties
https://www.aag-accountants.co.uk/late-payment-of-taxes
Late Tax Penalties and Changes
https://www.saffery.com/insights/news/changes-to-late-payment-penalties
HMRC Late Payment Interest Totals (Iwoca)
https://www.iwoca.co.uk/tax/penalties-for-late-tax-payments
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