Following the November reduction in the Bank of England base rate, HMRC is adjusting its late payment and repayment interest rates accordingly. The base rate was cut to 4.75% on 7 November, marking the second reduction this year. These changes to HMRC rates will take effect from 18 November.
Key Changes to HMRC Interest Rates:
- Late Payment Interest:
From 18 November, the late payment interest rate will decrease to 7.25% (down from 7.5%). This rate is calculated as the base rate plus 2.5%. - Repayment Interest:
Starting 26 November, repayment interest will drop to 3.5% (down from 3.75%). This rate is pegged at the base rate minus 1%, with a minimum floor of 0.5%. - Corporation Tax Interest:
- For underpaid quarterly instalments, the interest rate will be reduced to 5.75% (from 6%) effective 18 November.
- For overpaid quarterly instalments and early payments of corporation tax not due by instalments, the rate will decrease to 4.5% (from 4.75%) starting 18 November.
Although these adjustments have been triggered by the recent base rate cut, HMRC has yet to update the official rates on its Rates and Allowances guidance page on Gov.uk, only noting that updates are forthcoming.
Future Changes in 2025:
From 6 April 2025, HMRC will implement a higher surcharge on late payment interest. The premium, currently set at 2.5% above the base rate, will increase to 4%. This measure is part of a broader initiative to combat tax avoidance and late payments, aiming to raise an additional £255 million annually starting in 2025-26.
Despite this, HMRC will continue to pay significantly lower interest on overpayments, highlighting the disparity between its charges and repayments. For instance, the repayment rate will drop to 4.5% from 26 November, compared to the 7.25% charged for late payments.
These rate changes reflect the ongoing adjustments to align with the Bank of England’s monetary policy while also signaling HMRC’s focus on strengthening tax compliance measures.