Urgent warning as households are hit with soaring tax bills after rates continue to rocket – how to avoid it

THOUSANDS of people could be hit with huge tax bills after interest charged for late tax payments is hiked again.

HM Revenue & Customs (HMRC) charges interest on unpaid taxes and the rate is linked to the Bank of England base rate.

The central bank has recently increased rates by 0.5 percentage points from 4.5% to 5%.

This means that customers who don't pay their taxes on time will now face a 7.5% late payment fee, up from the current rate of 7%.

HMRC said: "The late payment interest rate encourages prompt payment.

"It ensures fairness for those who pay their tax on time."

This will affect late payments for the majority of personal taxes and will affect the millions of people who have to file their own tax return.

Taxes include income tax, national insurance contributions, capital gains tax, stamp duty and inheritance tax.

The increased rate will come into effect on July 3.

You'll be liable for late payment charges from the date the payment was due until the date at which HMRC receives the payment.

How is the late payment interest rate calculated?

HMRC links its interest rates on late payment charges with the Bank of England's base rate.

Late payment interest is set at the base rate plus 2.5%.

The Bank of England increased interest rates to their highest level since 2008 this week.

It is the thirteenth time in a row that rates have been raised since December 2021 when they were at historic lows.