UK’s tax authority, His Majesty’s Revenue and Customs (HMRC) has announced updated late payment and repayment interest rates in response to the Bank of England’s base rate reduction from 4.50% to 4.25% on 8 May 2025.

HMRC interest rates are linked to the Bank of England base rate. As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will reduce.

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is currently set at base rate plus 4.00%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.

The differential between late payment interest and repayment interest is in line with the policy of other tax authorities worldwide and compares favourably with commercial practice for interest charged on loans or overdrafts and interest paid on deposits.

The rate of late payment interest encourages prompt payment and ensures fairness for those who pay their tax on time, while the rate of repayment interest fairly compensates taxpayers for loss of use of their money when they overpay.

These changes will come into effect on:

  • 19 May 2025 for quarterly instalment payments
  • 28 May 2025 for non-quarterly instalments payments

How interest rates are set

HMRC interest rates are set in legislation and are linked to the Bank of England base rate. There are two rates:

  • late payment interest set at base rate plus 4% from 6 April 2025 (was plus 2.5% on or before 5 April 2025)
  • repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)

The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.

The repayment interest rate compensates taxpayers fairly, when they overpay, for loss of use of their money.

Earlier, the UK tax authority, His Majesty’s Revenue and Customs (HMRC) announced a reduction in interest rates for late payments and repayments following the Bank of England’s base rate cut on 6 February 2025.