The UK tax authority, His Majesty’s Revenue and Customs (HMRC) has announced a reduction in interest rates for late payments and repayments following the Bank of England’s base rate cut on 6 February 2025.
The base rate was lowered from 4.75% to 4.5%, prompting changes in the interest rates applied to tax payments.
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.
These changes will come into effect on:
- 17 February 2025 for quarterly instalment payments
- 25 February 2025 for non-quarterly instalments payments
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 2.5%. 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 the 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.
