HMRC will reduce its late payment and repayment interest rates from 28 May, following the Bank of England’s decision to cut the base rate to 4.25% on 8 May.
The late payment interest rate will drop from 8.5% to 8.25% – still the highest level since 2000. The repayment interest rate will fall from 3.5% to 3.25%.
These rates are pegged to the Bank of England base rate, with late payment interest set at base rate plus 4%, and repayment interest at base rate minus 1%, with a minimum floor of 0.5%. The 0.25% cut reflects the change in the base rate and is a small relief for those facing penalties for late tax payments.
Corporation tax interest rates will also change. From 19 May, interest on underpaid quarterly instalments will fall from 7.0% to 6.75%, while interest on overpaid instalments not due by instalments will drop from 4.25% to 4%.
It’s worth noting that HMRC increased the margin it charges above the base rate from 2.5% to 4% from 6 April 2025. This change, announced in the October 2024 Budget, aims to support efforts to tackle tax avoidance and is expected to raise £255 million a year.
While taxpayers will benefit slightly from lower repayment interest, HMRC said the difference between what it charges and pays is consistent with tax authorities worldwide and reflects typical commercial practice.
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